Financial Reporting for Global Businesses U.S.

Company recently established a subsidiary in Japan to facilitate sales in that country. In analyzing the financial statements prepared by the subsidiary and consolidating its financial statements with those of the U.S. parent company, representatives of the U.S. Company have questioned whether the accounting standards used in Japan or the United States should be utilized. Explain your answers to each of the following:

a. Which accounting principles should be used by the subsidiary in recording its activities and in preparing financial statements to be provided to creditors in Japan?

b. Which accounting principles should be applied when computing income taxes payable in Japan?

c. Which accounting principles should be used in accounting for the subsidiary when its financial statements are consolidated with those of the parent company?

d. What would be the likely cause if, after a successful first year of operations in Japan, the value of the subsidiary’s net assets included in the parent company’s consolidated statements declined from the beginning of the year to the end of the year?