International Accounting - FINAL STUDY

*Historical cost is the primary basis for asset valuation under U.S. G.A.A.P. Why is historical cost NOT as important in the accounting systems of Latin America as in the U.S.?* Historical costs are too difficult to calculate in the currencies used in Central and South America. The countries of Latin America have experienced very high rates of inflation, which would make historical costs meaningless to readers of financial statements. In Latin America, asset prices are very stable, making historical costs equal to replacement costs, so it doesn't matter which valuation basis is used. There is very little foreign direct investment in the countries of Latin America, so few assets need to be accounted for.

The countries of Latin America have experienced very high rates of inflation, which would make historical costs meaningless to readers of financial statements.

*It has been said that the addition of 10 new members to the European Union (EU) in 2004 is likely to significantly change the dynamics within the EU. What was the explanation given for this statement?* The EU is getting too large to manage effectively. The members added in 2004 have more economic power than the members that joined the EU between 1957 and 1995. The purchasing power of the EU was weakened by the addition of additional members. The members added in 2004 have very different political and economic traditions than the 15 members that joined before 2004.

The members added in 2004 have very different political and economic traditions than the 15 members that joined before 2004.

*Under the temporal method of translating foreign currency financial statements, what exchange rate should be used for cost of goods sold?* Average rate during the year There is no single rate that can be used for this purpose Spot rate at the end of the year Spot rate mid-year

There is no single rate that can be used for this purpose

*What is the primary focus of IAS 1?* To establish the framework of guidelines to be used by IASB in setting accounting standards To provide guidance to first-time adopters of IFRS issued by the IASB To establish the guidelines for financial statement presentation None of the above

To establish guidelines for financial statement presentation

*How does the treatment of borrowing costs under U.S. GAAP differ from IFRS?* The definition of borrowing costs under U.S. GAAP is broader in scope than the definition of interest cost under IAS 23. U.S. GAAP has no guidance for accounting treatment related to borrowing costs. U.S. GAAP specifically includes foreign exchange gains and losses on foreign currency borrowings. U.S. GAAP does not allow netting of interest income against interest cost.

U.S. GAAP does ont allow netting of interest income against interest cost.

*Which of the following is generally true about the differences between U.S. GAAP and IFRS?* U.S. GAAP tends to be more rules-based and IFRS tend to be principles-based. U.S. GAAP is more flexible than IFRS. More professional judgment is required to apply U.S. GAAP than is required for implementing IFRS. In all cases, U.S. GAAP is more detailed than the IFRS.

U.S. GAAP tends to be more rules-based and IFRS tend to be principles-based.

*Which of these European countries does NOT use the Euro as its domestic currency?* France The Netherlands United Kingdom Ireland

United Kingdom

*Under the IASB's exposure draft, Income Tax, how would the term "substantively enacted", as it applies to tax laws, be determined?* When one part of a bicameral legislature has passed a tax bill When any future steps in the enactment process can't change the outcome When the affected jurisdiction has issued final regulations with respect to a tax law All of the above

When any future steps in the enactment process can't change the outcome

*IAS 32 defines a financial instrument as:* any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. a recognized stock exchange. a certified check. the currency of a foreign country in which the enterprise does business.

any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

*Foreign Exchange risk arises when:* goods or services purchased from suppliers in a foreign country are denominated in domestic currency. auditing reports are prepared in a foreign currency. sales are made to customers in a domestic country. business transactions are denominated in foreign currencies.

business transactions are denominated in foreign currencies.

*A translation adjustment may be necessary when:* purchasing goods from a domestic company. hedging foreign currency. foreign currency financial statements are converted to another currency. notes to financial statements are converted from one language to another.

foreign currency financial statements are converted to another currency

*A company that recognizes and adapts its business practices to differences across cultures in which it operates is referred to as being:* geocentric polycentric. egocentric. ethnocentric.

geocentric

*When a currency is allowed to increase or decrease freely according to market forces, the currency is said to:* be less valuable. devalue. be pegged to another currency. have independent float.

have independent float.

*The methods allowed by the IFRS for valuing property, plant, and equipment are:* fair value and general purchasing power. historic cost and general purchasing power. fair value and inflation-adjustment. historic cost and fair value.

historic cost and fair value

*A "bottom-up" test and "top-down" test must be applied under IASB standards to determine:* allocation of overhead costs. impairment of goodwill. impairment of tangible fixed assets. impairment of patents.

impairment of goodwill.

*The IASB's Framework for Preparation and Presentation of Financial Statements (1989) implies that the most important group of users is:* government. creditors. investors. general public.

investors

*If a company chooses the revaluation model permitted in IAS 16 for fixed asset measurement:* appraisals must be performed by an official of the IASB. it must update the valuation so that the balance sheet represents fair value on the balance sheet date. annual revaluations must be performed on each class of assets. the depreciated replacement cost must be used as the fair value of the fixed asset.

it must update the valuation so that the balance sheet represents fair value on the balance sheet date.

*De jure harmonization refers to the process of:* making accounting regulations consistent internationally. eliminating the need to have different accounting methods. making accounting practices consistent across countries. resolving accounting differences through jury trials.

making accounting regulations consistent internationally.

*Influencing subordinates to behave in accordance with the goals and objectives of the organization is referred to as:* management control. strategic planning. performance evaluation. goal congruence.

management control

*According to IAS 37, with respect to onerous contracts, a provision should be recognized for "unavoidable costs of the contract", which is:* the lower of cost or market value of the contract. the lower of cost of fulfillment or the penalty from non-fulfillment of the contract. the intrinsic value of the contract. None of the above

the lower of cost of fulfillment or the penalty from non-fulfillment of the contract.

*The following information was taken from the fixed asset records of Bosco Ltd. as of December 31, 2010:* Carrying value €100,000 Selling price €85,000 Costs of disposal €3,000 Expected future cash flows €75,000 Present value of expected future cash flows €63,000 *Using IAS 36, what is the recoverable amount?* €85,000 €75,000 €63,000 €82,000

€82,000

*Zenith Company, a calendar-year entity, amends its defined benefit pension plan on January 1, 2019 and must recognize the increase in past service costs of its vested and non-vested employees as of that date in the calculation of its net 2019 pension expense (or revenue). The pertinent facts as of January 1, 2019 are:* Increase in PSC—vested employees: $5,000 Increase in PSC—non-vested employees: 2,000 Remaining vesting period—non-vested employees: 5 years Remaining working life—vested employees: 10 years Remaining working life—non-vested employees: 20 years *Calculate the past service costs included in 2019 net pension expense (or revenue) under U.S GAAP.* $5,100 $5,400 $600 $7,000

$600

*Assume that an initial investment is $100,000 and that the estimated annual cash flows for the next 5 years are $25,000. What is the internal rate of return (IRR) for this investment?* 8% 18% 5.56% 1%

8%

*What is an advance pricing agreement?* A contract between a parent company and a foreign subsidiary to complete a transaction at a specified future price A transfer pricing method accepted by the IRS before an intercompany transaction is completed A foreign currency firm commitment with payment before delivery of the product A transfer price that is negotiated between two divisions of a decentralized organization

A transfer pricing method accepted by the IRS before an intercompany transaction is completed

*For what reason are the transfer prices of imports more closely monitored worldwide than are exports? Effect on local job availability Impact on a country's balance of trade Political implications All of the above

All of the above

*International accounting diversity can be found in terms of:* the amount of information disclosed in the financial statements. the terminology used in the financial statements. All of the above evidence of accounting diversity. the order of items in the financial statements.

All of the above

*Which of the following is a reason for a parent to use discretionary transfer prices?* Minimize import duties Improve competitive position of foreign operation Avoid restrictions on repatriation of profits All of the above

All of the above

*Which of the following qualitative characteristics make financial statement information useful?* Reliability Understandability Relevance All of the above

All of the above

*Which of the following is NOT a share-based payment transaction under IFRS 2?* Cash-settled share-based payment Choice-of-settlement share-based payment Equity-settled share-based payment All of the above are share-based payment transactions under IFRS 2.

All of the above are share-based payment transactions under IFRS 2.

*Which of the following actions could a company use to hedge balance sheet exposure?* Foreign currency option Foreign currency borrowing Forward contract on foreign currency All of the above may be used to hedge balance sheet exposure.

All of the above may be used to hedge balance sheet exposure.

*How does U.S. GAAP require the prior service cost related to retirees to be recognized?* Don't recognize at all Recognize immediately Amortize over the average remaining working lives of active employees Amortize over remaining expected life of the retirees

Amortize over remaining expected life of the retirees

*Which of the following is NOT major concern related to convergence of international accounting standards?* IFRS language translation difficulties The complicated nature of particular standards The tax-driven nature of the national accounting regime An overload of guidance on the first-time application of IFRS

An overload of guidance on the first-time application of IFRS

*Which of the following is a major limitations of using the internal rate of return as a tool in capital budgeting?* Does not consider cash flows Does not use accounting numbers Assumes unrealistic reinvestment rate Ignores the time value of money

Assumes unrealistic reinvestment rate

*Which of the following calculations will yield return on investment (ROI)?* Annual net income/book value of investment Average annual net income/present value of investment Average annual net income/book value of investment Book value of investment/annual net income

Average annual net income/book value of investment

*Under IAS 12, Income Taxes, how is the relationship between a hypothetical tax expense based on statutory rates and reported tax expense based on the effective tax rate explained?* A numerical reconciliation between tax expense based on the statutory rate in the home country and tax expense based on the effective tax rate must be presented. A numerical reconciliation between tax expense based on the weighted-average statutory rate across jurisdictions in which the company pays income taxes and tax expense based on the effective tax rate must be presented. Both (A) and (B) can be acceptable explanations. Neither (A) nor (B) are acceptable explanations.

Both (A) and (B) can be acceptable explanations.

*What is a capital investment?* Using money to buy goods or services Committing resources to projects that have long period costs and benefits Authorizing and issuing shares of common stock by a multinational corporation Issuing shares of stock of the corporation

Committing resources to projects that have long period costs and benefits

*Which of the following methods for translating foreign currency financial statements is required under IAS 21?* Current rate method or temporal method, depending on the functional currency of the subsidiary. Current rate method or temporal method must be chosen by management of the parent. Temporal method. Current rate method.

Current rate method or temporal method, depending on the functional currency of the subsidiary.

*According to the Framework for Preparation of Financial Statements of the IASB, what is the definition of income?* Increase in equity (other than from transactions with owners) Revenue minus expenses Assets minus liabilities Inflow of resources with future economic benefit

Increase in equity (other than from transactions with owners)

*Which intangible assets are subject to annual impairment testing?* Definite-lived intangible assets. Definite-lived tangible assets. Indefinite-lived intangible assets. Indefinite-lived intangibles and goodwill are subject to impairment testing at least annually.

Indefinite-lived intangibles and goodwill are subject to impairment testing at least annually.

*Under U.S. GAAP, if an entity issues 4% preferred stock that gives shareholders the right to redeem the shares if the prevailing interest rates on 5-year certificates of deposit exceed 4%, how should this stock be accounted for on the books of the entity?* As a liability since the chances are more likely than not that the triggering event will occur As a permanent part of equity, to be debited as shares are redeemed As equity or a liability at the option of the entity Initially as equity and then reclassified as a liability when the triggering event occurs

Initially as equity and then reclassified as a liability when the triggering event occurs

*Worldwide, which type of transfer is most likely o be audited?* Intercompany services Rental or lease payment made for use of tangible property Exports Sale of tangible property

Intercompany services

*SSM Corporation, a multinational healthcare system, measures the number of minutes between a patient's arrival at the emergency room and the time he/she is seen by a physician. This measure focuses on what aspect of the balanced scorecard?* Customer perspective Innovation and learning perspective Internal business processes perspective Financial perspective

Internal business processes perspective

*What is the effect of conducting a sensitivity analysis in capital budgeting?* It helps analysts to determine if results are particularly affected by specific estimates. It complicates the process of making a decision when there are conflicting signals. Preferences for one capital investment alternative over another will change. All of the above

It helps analysts to determine if results are particularly affected by specific estimates.

*King's Bank, a British company, purchases market research services from Harris Interactive, a U.S. company. As per the terms of the contract, payment is to be made three months later in U.S. dollars when the report is delivered. How would King's Bank like to see the exchange rate move, assuming it isn't hedging the transaction?* It makes no difference, since they are the customer and the sale takes place in the U.K. It hopes that the British pound appreciates in value against the U.S. dollar. It hopes that there is no change between the spot rate and the forward rate. It hopes that the U.S. dollar appreciates in value against the British pound.

It hopes that the British pound appreciates in value against the U.S. dollar.

*Alpha Inc. has receivables from unrelated parties with a face value of $5,000. It transfers these receivables to bank for $4,500, without recourse. It will continue to collect the receivables, depositing them in a non-interest-bearing bank account with the cash flows remitted to the bank at the end of each month. It is not allowed to sell or pledge the receivables to anyone else and is under no obligation to repurchase the receivables from bank. Which of the following is the appropriate treatment for these Accounts receivables?* It should show these receivables in its Balance Sheet. It should derecognize these receivables if it retains the interest earned on these. It should derecognize these receivables. It should amortize these receivables.

It should derecognize these receivables

*What is the primary difficulty of suing market-based transfer prices for intercompany transactions?* Lack of objectivity Lack of a well-developed market Markets that are too complex Operating inefficiencies are transferred from one subsidiary to another

Lack of well-developed market

*Using the temporal method of translating foreign currency financial statements, what basis should be employed when using the "lower of cost or market" rule for inventory valuation?* Lower of parent currency cost or parent currency market at appropriate exchange rate Lower of subsidiary currency cost or subsidiary currency market at appropriate exchange rate Lower of parent currency cost or parent currency market at current exchange rate Lower of subsidiary currency cost or parent currency market at current exchange rate

Lower of parent currency cost or parent currency market at appropriate exchange rate

*Under IAS 38, which of the following items might qualify for capitalization as internally generated intangible assets?* Brands Customer lists Publishing titles Market share

Market share

*According to a 2010 study by Ernst & Young, what percentage of MNC respondents had experienced a transfer pricing audit somewhere in the world since 2006?* More than 66% More than 25% More than 90% More than 10%

More than 66%

*Subsidiary X, located in a country with a 25% corporate income tax rate, and Subsidiary Y, located in a country with a 35% corporate income tax rate are part of a decentralized organization. They have been engaged in trade with one another using a negotiated transfer price of $50 per unit for sales by Subsidiary X to Subsidiary Y. Pipko, the parent company of both Subsidiary X and Subsidiary Y recently set a discretionary transfer price of $80 per unit for the transfers between X and Y. What is advantage of this decision?* Net income for the corporation as a whole will increase by $30 per unit. Net income for Subsidiary X will increase by $30 per unit. Net income for Subsidiary Y will decrease by $30 per unit. Net income for the corporation as a whole will increase by $3 per unit.

Net income for the corporation as a whole will increase by $3 per unit.

*Which of the following statements is true about performance evaluation in a multinational organization?* Divisional performance is the same as managerial performance. Good performance by a division indicates that its manager has been performing to expectations. A division that is performing poorly indicates that the manager of that division has performed poorly. None of the above is true.

None of the above is true.

*A bank exchanging foreign currency makes its profit in what means?* On the present value of the forward rate discounted to the date an option is purchased On the difference between the spot rate and the foreign rate A bank is forbidden, by law, to charge a premium in foreign currency exchange On the difference between the buying and selling rates

On the difference between the buying and selling rates

*What term is used to accounting standards that encourage risk-taking in financial reporting?* Optimism Transparency Conservatism Professionalism

Optimism

*Who was the first chairman of the International Accounting Standards Board?* Sir David Tweedie Sir Paul McCartney Sir Walter Raleigh Sir Bryan Carsberg

Sir David Tweedie

*Which of the following statements is true about the IASB's approach to accounting standard setting?* The IASB pronouncements have been called a "cookbook" of accounting standards. The IASB approach is very similar to the rules-oriented basis favored by the FASB in the United States. The Sarbanes-Oxley Act requires the IASB to move toward the approach for standard setting used by the FASB. The IASB uses a principles-based approach to standards formulation.

The IASB used principles-based approach to standards formulation

*What is the primary problem with using discretionary transfer prices to minimize costs in a decentralized organization?* The appropriate transfer price to minimize costs cannot be determined by the parent company. They are extremely difficult to administer. The benefits of decentralization may be lost. They don't really minimize tax costs.

The benefits of decentralized may be lost.

*Agro-World Technologies Inc. incurred $1,000,000 to construct a pilot plant to study the feasibility of building agricultural machinery more inexpensively for emerging economies. How would this cost be classified under IAS 38 (Intangible Assets)?* Development costs Neither research nor development It could be either research or development, depending on management's wishes. Research costs

Development costs

*Under IFRS 15, Revenue from Contracts with Customers, which of the following is NOT one of the steps to be applied in the recognition of revenue across a wide range of transactions and industries?* Do not separate the transaction price for separate performance obligations if the contract is a bundled contract where goods and services are not sold separately. Determine the transaction price. Identify the contract with a customer. Identify the separate performance obligations in the contract.

Do not separate the transaction price for separate performance obligations if the contract is a bundled contract where goods and services are not sold separately.

*How can conflict between cost minimization and performance evaluation be overcome in a decentralized organization?* Dual transfer pricing systems Cost-based transfer pricing systems Market-based transfer pricing systems Negotiated transfer pricing systems

Dual transfer pricing systems

*What exchange rate should be used to translate the common stock of Essco Ltd, a foreign subsidiary of Peako Corp., when consolidating the financial statements using the current rate method?* Current rate Average rate Cannot be determined with the information given Historical rate

Historical rate

*Of the following methods for translating foreign currency financial statements, which one maintains the underlying valuation method (i.e. historical cost or current value) used by the foreign subsidiary?* Current/Non-current method Current rate method Temporal method Monetary/Non-monetary method

Temporal method

*In a recent survey, what issue did 30% of respondents identify as the most important international tax issue they face?* Transfer pricing Foreign currency translation of taxable income Double taxation Withholding taxes

Transfer pricing

*According to IAS 1, which of the following is the overriding principle that must be followed while preparing IFRS-based financial statements?* Going concern Comparative information Fair presentation Revenue recognition

Fair presentation

*Which of the following is a limitation of using the temporal method for translating foreign currency financial statements?* Financial ratios after translation will be distorted. The translation adjustment will usually have a negative impact on income. The translated asset and liability amounts have no meaningful interpretation. All of the above are limitations of the temporal method.

Financial ratios after translation will be distorted

*Which of the following would be characteristics of a bureaucratic control system?* Goals are more likely to be achieved by local managers Meetings between parent and subsidiary managers are scheduled when needed rather than on a specific schedule Budgets play a minor role in the management control system Financial targets are more explicitly specified throughout an organization

Financial targets are more explicitly specified throughout an organization

*Which of the following ratios is used in the calculation of the multinationality index (MNI)?* Foreign loans to total loans Foreign cash to total cash Foreign working capital to total working capital Foreign employment to total employment

Foreign employment to total employment

*What does "multinationality" mean?* The diversity of languages spoken at a company's headquarters The number of stock exchanges where a company's shares are listed None of the above Geographical distribution of sales, assets, and employees of the company

Geographical distribution of sales, assets, and employees of the company

*Memphis Ltd. purchased a building in 2015 for €11,000,000 and as of December 31, 2018 had recorded accumulated depreciation on the building of €4,000,000. On December 31, 2018, the company conducted its first revaluation when the fair value was €27,000,000. Under IAS 16, the journal entry recorded on this date would include:* a debit to Revaluation Surplus—Building for €14,000,000. a credit to Revaluation Surplus—Building for €20,000,000. a debit to Loss on Revaluation—Building for €14,000,000. a credit to Loss on Revaluation—Building for €20,000,000.

a credit to Revaluation Surplus—Building

*Synergy Ltd. purchased a building in 2008 for €20,000,000 and as of December 31, 2014 had recorded accumulated depreciation on the building of €6,000,000. On December 31, 2014, the company conducted its first revaluation when the fair value was €24,000,000. Under IAS 16, the journal entry recorded on this date would include:* a debit to Revaluation Surplus—Building for €14,000,000. a credit to Loss on Revaluation—Building for €10,000,000. a credit to Revaluation Surplus—Building for €10,000,000. a debit to Loss on Revaluation—Building for €14,000,000.

a credit to Revaluation Surplus—Building for €10,000,000.

*In Gray's framework for accounting system development, the cultural dimentions of individualism, power distance, uncertainty avoidance, and masculinity directly affect:* ecological influences. accounting systems. accounting values. external influences.

accounting values