When a parent and subsidiary have substantial intercompany transactions, the easiest way to prepare the consolidated statement of cash flows is to use the "analyzing the changes in the consolidated balance sheet" approach-not the "combining the separate statements" approach.

Question

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The "analyzing the changes in the consolidated balance sheet" approach is often easier because it directly considers the net effect of intercompany transactions, which are eliminated in consolidation, whereas the "combining the separate statements" approach requires adjustments for these transactions.

When a Parent and Subsidiary Have Substantial Intercompany Transactions, the Easiest