Advanced Accounting exam 2

Matthias Corp. had the following foreign currency transactions during 2017: -Purchased merchandise from a foreign supplier on Jan 20, for the U.S dollar equivalent of $60,000 and paid the invoice on April 20 at the U.S dollar equivalent of $50,000. -On Sept 1, borrowed the U.S dollar equivalent of $300,000 evidenced by a note that is payable in the lender's local currency in one year. On Dec 31, the U.S dollar equivalent of the principal amount was $320,000 In Matthias' 2017 income statement, what amount should be included as a net foreign exchange gain or loss? a. $10,000 gain b. $10,000 loss c. $20,000 gain d. $30,000 loss

b. $10,000 loss

Which of the following statements is NOT true under U.S GAAP? a. Operating segments can be determined by looking at a company's organization chart b. Companies must combine individual foreign countries into geographic areas to comply with the geographic area disclosure requirements c. Companies that define their operating segments by product lines must provide revenue and asset information for the domestic country, for all foreign countries in total, and for each material foreign country d. Companies must disclose total assets, investment in equity method affiliates, and total expenditures for long-lived assets by operating segment

b. Companies must combine individual foreign countries into geographic areas to comply with the geographic area disclosure requirements

According to U.S. GAAP for a local currency perspective, which method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency? a. Temporal method b. Current rate method c. Current/ noncurrent method d. Monetary/ nonmonetary method

b. Current rate method

Which of the following historical reasons for accounting diversity could explain why accounting standards would be more detailed in some countries than in others? a. Different rates of inflation across countries b. Different legal systems across countries c. Differences across countries in the extent to which financial statements are the basis for taxation d. Political and economic ties between countries

b. Different legal systems across countries

A company must prepare IFRS financial statements for the first time on December 31, 2020. According to IFRS 1, what is the date of transition to IFRS for this company? a. January 1, 2018 b. January 1, 2019 c. December 31, 2019 d. December 31, 2020

b. January 1, 2019

Plume Company has a paper products operating segment. Which of the following items does it not have to report for this segment? a. Interest expense b. Research and development expense c. Depreciation and amortization expense d. Interest income

b. Research and development expense

Which of the following items are required to be disclosed by geographic area? a. Total assets b. Revenue from external customers c. Profit or loss d. Capital expenditures

b. Revenue from external customers

Which tests must a company use to determine which operating segments require separate disclosure? a. Revenue test and asset test b. Revenue test, profit or loss test, and asset test c. Revenue test and profit or loss test d. Profit or loss test and asset test

b. Revenue test, profit or loss test, and asset test

On July 1, 2017, Mifflin Company borrowed 200,000 euros from a foreign leader evidenced by an interest-bearing note die on July 1, 2018. The note is demonstrated in euros. The U.S Dollar equivalent of the note principal is as follows: July 1,2017 (date borrowed) 225,000 December 31, 2017 (Mifflin's year-end) 200,000 July 1, 2018 (date repaid) 210,000 In its 2018 income statement, what amount should Mifflin include as a foreign exchange gain or loss on the note? a. $15,000 gain b. $15,000 loss c. $10,000 gain d. $10,000 loss

c. $10,000 gain

According to the IFRS Foundation, approximately how many countries either require or permit the use of IFRS by publicy traded companies ? a. 40 countries b. 80 countries c. 115 countires d. 195 countries

c. 115 countries

A foreign subsidiary of Thun Corp. has one asset (inventory) and no liabilities. The functional currency for this subsidiary is the yuan. The inventory was acquired for 100,000 yuan when the exchange rate was $0.16 = 1 yuan. Consolidated statements are to be produced, and the current exchange rate is $0.12= 1 yuan. Which of the following statements is true for the consolidated financial statements? a. A re-measurement gain must be reported b. A positive translation adjustment must be reported c. A negative translation adjustment must be reported d. A re-measurement lost must be reported

c. A negative translation adjustment must be reported

How should a change from one generally accepted accounting principle to another accepted principle be handled in a third-quarter income statement? a. Postpone recording of the change to an annual income statement b. Record the change in the third-quarter income statement, net of income taxes. c. Adjust financial statements for each prior period presented to reflect the effect of the new principle in those reported period d. These changes are prohibited by GAAP

c. Adjust financial statements for each prior period presented to reflect the effect of the new principle in those reported period

Alpha Inc., a U.S. company, had a receivable from a customer that was denominated in Mexican pesos. On December 31, 2012, this receivable for 75,000 pesos was correctly included in Alpha's balance sheet at $8,000. The receivable was collected on March 2, 2013, when the U.S. equivalent was $6,900. How much foreign exchange gain or loss will Alpha record on the income statement for the year ended December 31, 2013? a. $1,100 loss b. $1,100 gain c. $6,900 loss d. $6,900 gain

a. $1,100 loss

On October 1, 2017, Tile Co., a U.S Company, purchased products from Azulejo, a Portuguese company, with payment due on December 1, 2017. If Tile's 2017 operating income included no foreign exchange gain or loss, the transaction could have a. Been denominated in U.S Dollar b. Resulted in an unusual gain c. Generated a foreign exchange gain to be reported as a deffered charge on the balance sheet d. Generated a foreign exchange loss to be reported as a separate component of stockholder's equity

a. Been denominated in U.S Dollar

which of the following statements concerning U.S GAAP is true? a. Does not require segment information to be reported in accordance with generally accepted accounting principles b. Does not require a reconciliation of segment assets to consolidated assets c. Requires geographic area information to be disclosed in interim financial statements d. Requires disclosure of a major customer's identity

a. Does not require segment information to be reported in accordance with generally accepted accounting principles

A U.S company sells merchandise to a foreign company denominated in the foreign currency. Which of the following statements is true? a. If the foreign currency appreciates, a foreign exchange gain will result b. If the foreign currency depreciates, a foreign exchange gain will result c. No foreign exchange gain or loss will result d. If the foreign currency appreciates, a foreign exchange loss will result

a. If the foreign currency appreciates, a foreign exchange gain will result

how should revenues be recognized in interim periods? a. In the same way as they are recognized on annual basis b. On the cash basis c. On an annualized basis c. On a seasonal basis

a. In the same way as they are recognized on annual basis

Which of the following operating segment disclosures is NOT required under current U.S accounting guidelines? a. Liabilities b. Interest Expense c. Inter-segment sales d. Unusual items

a. Liabilities

For which of the following types of companies is IFRS for SMEs intended? a. Private companies b. Publicly traded companies c. Multinational corporations d. Foreign companies

a. Private companies

Brief, Inc. had receivable from a foreign customer that is payable in the customer's local currency. On December 31, 2017, Brief correctly included this receivable for 200,000 local currency units in its balance sheet at $110,000. When Brief collected the receivable on February 15, 2018, the U.S Dollar equivalent was $120,000. In Brief's 2018 consolidated income statement, how much should it report as a foreign exchange gain? a. $0 b. $10,000 c. $15,000 d. $25,000

b. $10,000

What information about revenues by geographic area should a company present? a. Disclose separately the amount of sales to unaffiliated customers and the amount of intra-entity sales between geographic areas b. Disclose as a combined amount sales to unaffiliated customers and intra-enty sales between geographic areas c. Disclose separately the amount of sales to unaffiliated customers but not the amount of intra-entity sales between geographic areas d. No disclosure of revenues from foreign operations needed be reported

c. Disclose separately the amount of sales to unaffiliated customers but not the amount of intra-entity sales between geographic areas

Which of the following is NOT a potential problem caused by differences in financial reporting practices across countries? a. Consolidation of financial statements by firms with foreign operations is more difficult b. Firms incur additional costs when attempting to obtain financing in foreign countries c. Firms face double taxation on income earned by foreign operations d. Comparisons of financial ratios across firms in different countries may not be meaningful

c. Firms face double taxation on income earned by foreign operations

Which of the following combinations correctly describes the relationship between foreign currency transactions, exchange rate changes, and foreign exchange gains and losses? a. Export sale, Appreciates, loss b. Import purchase, appreciates, gain c. Import purchase, depreciates, gain d. Export sale, depreciates, loss

c. Import purchase, depreciates, gain

According to the IASB, IFRS comprise interpretation issued by the SIC and IFRIC, and a. International financial reporting standards issued by the IASB only b. International accounting standards issued by the IASC only c. International financial reporting standards issued by the IASB and international accounting standards issued by the IASC d. International financial reporting standards issued by the IASB and statements of financial accounting standards issued by the FASB

c. International financial reporting standards issued by the IASB and international accounting standards issued by the IASC

A U.S company sells merchandise to foreign company denominated in U.S dollars. Which of the following statements is true? a. If the foreign currency appreciates, a foreign exchange gain will result b. If the foreign currency depreciates, a foreign exchange gain will result c. No foreign exchange gain or loss will result d. If the foreign currency appreciates, a foreign exchange loss will result

c. No foreign exchange gain or loss will result

Under current U.S accounting guidelines, which of the following items of information is a company NOT required to disclose, even if it were material in amount? a. Revenues generated from sales of its consumer products line of goods b. Revenues generated by its Japanese subsidiary c. Revenues generated from export sales d. Revenues generated from sales to Walmart

c. Revenues generated from export sales

Which of the following is a criterion for determining whether an operating segment is separately reportable? a. Segment liabilities are 10 percent or more of consolidated liabilities b. Segment profit or loss is 10 percent or more of consolidated net income c. Segment assets are 10 percent or more of combined segment assets d. Segment revenue from external sales are 5 percent or more of combined segment revenues from external sales

c. Segment assets are 10 percent or more of combined segment assets

What is a subsidiary's functional currency? a. The parent's reporting currency b. The currency used by the parent to acquire the subsidiary c. The currency in which the entity primarily generate d. Always the currency of the country in which the company has its headquarters

c. The currency in which the entity primarily generate

Which of the following information items with regard to a major customer must be disclosed? a. The identity of the major customer b. The percentage of total sales derived from the major customer c. The operating segment making sales to the major customer d. The geographic area in which sales to the major customer are made

c. The operating segment making sales to the major customer

In determining whether a particular operating segment is of significant size to warrant disclosure, which of the following is true? a. Three tests are applied, and all three must be met b. Four tests are applied, and only one must be met c. Three tests are applied, and only one must be met d. Four tests are applied, and all four must be met

c. Three test are applied, and only one must be met.

Kaycee corporation's revenues for the year ended December 31, 2012, were as follows: -Consolidated revenue per the income statement: $1,200,000 -Upstream Intersegment Sales: $180,000 -Downstream Intersegment Sales: $60,000 For purposes of the Revenue test, what amount will be used as the benchmark for determining whether a segment is reportable? a. $24,000 b. $120,000 c. $138,000 d. $144,000

d. $144,000

Which of the following statements is true for the translation process using the current rate method? a. A translation adjustment can affect consolidated net income b. Equipment is translated at the historical exchange rate in effect at the date of its purchase c. A translation adjustment is created by the change in the relative value of a subsidiary's monetary assets and monetary liabilities caused by exchange rate fluctuations d. A translation adjustment is created by the change in the relative value of a subsidiary's net assets caused by exchange rate fluctuations

d. A translation adjustment is created by the change in the relative value of a subsidiary's net assets caused by exchange rate fluctuations

Which of the following uses IFRS? a. Canada b. Mexico c. Brazil d. All of these answer choices are correct

d. All of these answer choices are correct

In accounting, the term translation refers to a.. the calculation of exchange rate gains or losses on individual transactions in foreign currencies. b.. the procedure required to identify a company's functional currency. c.. the calculation of gains or losses from all transactions for the year. d. a procedure to prepare a foreign subsidiary's financial statements for consolidation

d. a procedure to prepare a foreign subsidiary's financial statements for consolidation

For which of the following does IFRS for SMEs not provide a simplification of full IFRS? a. Goodwill b. Borrowing costs c. Development costs d. Inventory

d. inventory

In translating a foreign subsidiary's financial statements, which exchange rate does the current method require for the subsidiary's assets and liabilities? a. the exchange rate in effect when each asset or liability was acquired. b. the average exchange rate for the current year. c. a calculated exchange rate based on market value. d. the exchange rate in effect as of the balance sheet date

d. the exchange rate in effect as of the balance sheet date

Which of the following does NOT accurately describe a requirement that a company must fulfill when adopting IFRS for the first time? a. The company must prepare an opening IFRS balance sheet at the beginning of the year for which the company is preparing its first set of IFRS financial statements b. At the IFRS transition date, the company must select IFRS accounting policies based on those that will be in effect for the accounting period that will be covered by the first set of IFRS financial statements. c. At the IFRS transition date, the company must derecognized assets and liabilities that were recognized under previous GAAP that are not allowed to be recognized under IFRS d. The company must provide a reconciliation of net income and stockholders' equity under previous GAAP to net income and stockholders' equity under IFRS in its first set of IFRS financial statements

a. The company must prepare an opening IFRS balance sheet at the beginning of the year for which the company is preparing its first set of IFRS financial statements

In comparing the current rate and temporal methods of translation, which of the following is true? a. The reported balance of accounts receivable is normally the same under both methods b. The reported balance of inventory is normally the same under both methods c. The reported balance of equipment is normally the same under both methods d. The reported balance of depreciation expense is normally the same under both methods

a. The reported balance of accounts receivable is normally the same under both methods

For a U.S-based company, which of the following would be an acceptable presentation of countries for providing information by geographic area? a. United States, Mexico, Japan, Spain, All other countries b. United States, Canada, and Mexico, Germany, Italy c. Europe, Asia, Africa d. Canada, Germany, France, All other countries

a. United States, Mexico, Japan, Spain, All other countries

At what rates should the following balance sheet accounts in foreign statements be translated (using the current rate method) in U.S dollars? a. current equipment, current accumulated depreciation- equipment b.current equipment, average accumulated depreciation- equipment c.Historical equipment, current accumulated depreciation- equipment d. Historical equipment, historical accumulated depreciation- equipment

a. current equipment , current accumulated depreciation- equipment

Which of the following statements is correct with respect to the IFRS accounting policy hierarchy in situations where a specifically relevant IASB standard dealing with an accounting issue does not related issues. a. The IASB conceptual framework takes precedence over other IASB standards that deal with related issues b. The IASB conceptual Framework takes precedence over standards developed by standard setting bodies in other countries that deal with the specific accounting issue c. The most recent specifically relevant pronouncement of any other standard-setting body may be used when neither IASB standards nor the IASB conceptual Framework provide helpful guidance d. IFRSs takes precedence over IASs and Interpretations in identifying appropriate guidance

b. The IASB conceptual Framework takes precedence over standards developed by standard setting bodies in other countries that deal with the specific accounting issue

Grace Co. had a Chinese yuan payable resulting from imports from China and a Mexican peso receivable resulting from exports to Mexico. Grace recorded foreign exchange loses related to both its yuan payable and peso receivable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date? a. Yuan increase, Peso increase b. Yuan increase, Peso decrease c. Yuan decrease, Peso increase d. Yuan decrease, Peso decrease

b. Yuan increase, Peso decrease

What is the so-called Norwalk Agreement? a. An agreement between the FASB and SEC to allow foreign companies to use IFRS in their filing of financial statements with the SEC b. An agreement between the U.S FASB and the U.K Accounting standards board to converge their respective accounting standards as soon as practicable c. An agreement between the SEC chairman and the EU internal Marketing commissioner to allow EU companies to list securities in the United States without providing a U.S GAAP reconciliation. d. An agreement between the FASB and the IASB to make their existing standards compatible as soon as practicable and to work together to ensure compatibility in the future

d. An agreement between the FASB and the IASB to make their existing standards compatible as soon as practicable and to work together to ensure compatibility in the future

Which of the following is NOT necessarily true for an operating segment? a. An operating segment earns revenues and incurs expenses b. The chief operating decision maker regularly reviews an operating segment to assess performance and make resource allocation decisions c. Discrete financial information generated by the internal accounting system is available for an operating segment d. An operating segment regularly generates a profit from its normal ongoing operations

d. An operating segment regularly generates a profit from its normal ongoing operations

In considering interim financial reporting, how does current U.S GAAP require that such reporting be viewed? a. As a special type of reporting that need not follow generally accepted accounting principles b. As useful only if activity is evenly spread throughout the year making estimates unnecessary c. As reporting for a basic accounting period d. As reporting for an integral part of an annual period

d. As reporting for an integral part of an annual period

Which of the following is NOT a reason for establishing international accounting standards: a. Some countries do not have the resources to develop accounting standards on their own b. Comparability of financial reporting is needed between companies operating in different areas of the world c. It would simplify the preparation of consolidated financial statements by multinational corporations d. Demand in the United States is heavy for an alternative to U.S generally accepted accounting principles

d. Demand in the United States is heavy for an alternative to U.S generally accepted accounting principles

What are the two approaches that can be followed in preparing interim reports? a. In-discrete and terminal b. Discrete and terminal c. Metric and integral d. Discrete and integral

d. Discrete and integral

Under the temporal method, common stock would be remeasured at what rate? a. Beginning of the year rate. b. Average rate. c. Current rate. d. Historical rate.

d. Historical rate

A U.S company buys merchandise from a foreign company denominated in the foreign currency. Which of the following statements is true? a. If the foreign currency appreciates, a foreign exchange gain will result b. If the foreign currency depreciates, a foreign exchange gain will result c. No foreign exchange gain or loss will result d. If the foreign currency appreciates, a foreign exchange loss will result

d. If the foreign currency appreciates, a foreign exchange loss will result

Which of the following does U.S GAAP NOT consider to be an objective of segment reporting? a. It helps users better understand the enterprise's performance b. It helps users better asses the enterprise's prospects for future cash flows c. It helps users make more informed judgments about the enterprise as a whole d. It helps users make comparisons between a segment of one enterprise similar segment of another enterprise

d. It helps users make comparisons between a segment of one enterprise similar segment of another enterprise

For a foreign subsidiary that uses the U.S. dollar as its functional currency, what method is required to ready the financial statements for consolidation? a. current/ Noncurrent method b. Monetary / Nonmonetary method c. Current rate method d. Temporal method

d. Temporal method

Which of the following statements is true for a foreign company registered with the U.S SEC to list its stock on the New York Stock Exchange? a. The company must file an annual report with the SEC that is prepared in accordance with U.S GAAP. b. The company must file an annual report with the SEC that is prepared in accordance with IFRS but must also provide a reconciliation of IFRS to U.S GAAP c. The company must file an annual report with the SEC that is prepared in accordance with IFRS but must provide a reconciliation of IFRS to U.S GAAP d. The company may file an annual report with the SEC that is prepared in accordance with IFRS but need not to provide a reconciliation of IFRS to U.S GAAP

d. The company may file an annual report with the SEC that is prepared in accordance with IFRS but need not to provide a reconciliation of IFRS to U.S GAAP

In accounting for foreign currency transactions, which of the following approaches is used in the United States? a. one-transaction perspective; accrue foreign exchange gains and losses b. One-transaction perspective; defer foreign exchange gains and losses c. Two-transaction perspective; defer foreign exchange gains and losses d. Two-transaction perspective; accrue foreign exchange gains and losses

d. Two-transaction perspective; accrue foreign exchange gains and losses

Which of the following best descirbes the extent to which the SEC requires or permits the use of IFRS by U.S public companies ? a. U.S public companies are rewuired to use IFRS b. U.S public companies may choose between IFRS and U.S GAAP c. U.S public companies may use IFRS, but must also provide a reconciliation to U.S GAAP d. U.S public companies are neither required nor allowed to use IFRS

d. U.S public companies are neither required nor allowed to use IFRS

Which of the following statements is true for a company that has managers responsible for product and service lines of business and mangers responsible for geographic areas (matrix form of organization)? a. Under U.S GAAP, the company must base operating segments on geographic areas. b. Under IFRS, the company must base operating segments on product and service lines of business c. Under U.S GAAP, the company may choose to define operating segment on the basis of either products and services or geographic areas d. Under IFRS, the company must refer to the core principle of IFRS 8 to determine operating segments

d. Under IFRS, the company must refer to the core principle of IFRS 8 to determine operating segments