ACCY 190 - Chapter 1 SMARTBOOK

One of the reasons for Magnum to minimize the total amount of taxes it pays worldwide is that doing so will ______. - maximize its after-tax cash flows - increase its revenue - reduce its operational risk - maximize its income before tax

maximize its after-tax cash flows

An internal auditor must do all of the following except ______. - detect any inefficiencies - prepare financial statements - uncover financial reporting errors - make sure that the company's policies and procedures are being followed

prepare financial statements

To get the benefit of international transfer pricing, multinational companies ______. - shift profits between two high-tax countries through discretionary transfer pricing - shift profit between two low-tax countries through discretionary transfer pricing - shift profits from low-tax countries to high-tax countries through discretionary transfer pricing - shift profits from high-tax countries to low-tax countries through discretionary transfer pricing

shift profits from high-tax countries to low-tax countries through discretionary transfer pricing

Most multinational corporations like Magnum begin by selling their products in ______. - the domestic market - both domestic and foreign markets at the same time - foreign markets of developed countries - foreign markets

the domestic market

To reduce the total taxes paid in both the United States and Portugal, Magnum could transfer parts to Portugal at low prices to shift gross profit to Portugal. However, the expected benefit of transfer pricing can only be achieved when ______. - the income tax rates do not matter - the income tax rate in the United States is lower than that in Portugal - the income tax rate in Portugal is lower than that in the United States - the income tax rate in Portugal is equal to that in the United States

the income tax rate in Portugal is lower than that in the United States

Possible issue(s) unique to the performance evaluation of foreign operations include(s): 1. Currency used as the basis of performance 2. Translation from one currency to another currency, which affects performance measures - Only 2 - Neither 1 or 2 - 1 and 2 - Only 1

1 and 2

The procedure(s) to consolidate financial statements of a U.S. parent company with foreign operations involve(s): 1. When foreign GAAP accounting rules differ from U.S. GAAP, amounts calculated under the foreign GAAP must be converted to a U.S. GAAP basis. 2. After the account balances have been converted to a U.S. GAAP basis, they must be translated from foreign currency to U.S. dollars. - Neither 1 nor 2 - Only 2 - Only 1 - 1 and 2

1 and 2

The way(s) to recognize the difference of US$5,000 between the original US$ of the receivable and the actual number of US$ received in the accounting records include(s): 1. Treating the difference as a reduction in sales revenue. 2. Recording it as a separate loss resulting from a change in the foreign exchange rate. 3. Recording the difference as a bad debt expense. - 2 and 3 - 1 and 3 - 1, 2 and 3 - 1 and 2

1 and 2

Determination of net present value (NPV) involves: 1. Forecasting future profits and cash flows. 2. Aggregating past profits and cash flows. 3. Discounting the future cash flows back to present value and then comparing this present value amount with the amount of investment. - Only 3 - 1, 2, and 3 - Only 2 - 1 and 3

1 and 3

What is a greenfield investment in foreign direct investment (FDI)? - A type of foreign direct investment where a parent company acquires a profitable company in a foreign country - A type of foreign direct investment where a parent company purchases an existing operation in a foreign country - A type of foreign direct investment where a parent company invests in an established farming business - A type of foreign direct investment where a parent company constructs a brand-new operation in a foreign country

A type of foreign direct investment where a parent company constructs a brand-new operation in a foreign country

Why didn't Magnum use the British pound to record its sales to NMUK? - Because the U.S. dollar was the personal preference of the accountants at Magnum - Because Magnum wanted to keep its sales recorded in an appreciating currency - Because Magnum wanted to keep its sales recorded in a depreciating currency - Because Magnum follows U.S. GAAP, which requires companies to keep their accounting records in U.S. dollars

Because Magnum follows U.S. GAAP, which requires companies to keep their accounting records in U.S. dollars

In which foreign currency did Magnum bill the sales to NMUK? - U.S dollars - British pounds - Euros - Canadian dollars

British pounds

What do the credit terms of 2/10, net 30 mean? - Full payment is due within a 30-day credit period, but the buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date. - Full payment is due within a 10-day credit period, but the buyer can extend the due date to 30 days. - Full payment is due within a 30-day credit period, but the buyer can deduct 2/10 of the invoice amount if the payment is made within 10 days of the invoice date. - Full payment is due within a 10-day credit period, but the buyer can deduct 30% of the invoice amount.

Full payment is due within a 30-day credit period, but the buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date.

What is a possible way for Magnum to avoid the foreign exchange risk? - Increase the sales in other foreign currencies. - Reduce the domestic sales and increase foreign sales. - If the buyers agree, ask them to pay in U.S. dollars. - Sell the same amount of sales to another U.K. customer in British pounds.

If the buyers agree, ask them to pay in U.S. dollars.

What does "double taxation" mean? - Income taxes paid twice on the same source of earned income - Income taxes doubled with foreign operations - Income taxes doubled in a foreign country - Income taxes doubled in the home country

Income taxes paid twice on the same source of earned income

In the early 1950s, in which currency were Magnum Corporation's business activities carried out? - NASDAQ - New York Stock Exchange - London Stock Exchange - Shanghai Stock Exchange

New York Stock Exchange

Which hedging instrument could Magnum adopt to deal with its exposure to foreign exchange risk because of the foreign sales to NMUK? - Purchasing an option to sell British pounds for U.S. dollars - Purchasing an option to buy British pounds and pay by U.S. dollars - Selling an option to buy British pounds and pay by U.S. dollars - Selling an option to sell British pounds for U.S. dollars

Purchasing an option to sell British pounds for U.S. dollars

Which exchange rate did Magnum use to convert the sales to NMUK into U.S. dollars? - The exchange rate between the British pound and the U.S. dollar at the time of the sale transaction - The exchange rate between the British pound and the U.S. dollar at the beginning of the year - The exchange rate between the British pound and the U.S. dollar at the end of the fiscal year - The annual average of the exchange rates between the British pound and the U.S. dollar

The exchange rate between the British pound and the U.S. dollar at the time of the sale transaction

True or false: Headquarters management is usually interested in evaluating the performance of the operating units as well as the performance of the individuals responsible for managing those units.

True

True or false: In 2007, the U.S. SEC relaxed the requirement of providing a reconciliation of net income and stockholders' equity to U.S. GAAP for those foreign companies that use IFRS to prepare their financial statements.

True

According to U.S. GAAP, in which currency must the consolidated financial statements be presented? - A foreign currency - U.S. dollars - U.S. dollars and a foreign currency, side by side - U.S. dollars only if the domestic sales and expenses are larger than foreign sales and expenses

U.S. dollars

In the early 1950s, in which currency were Magnum Corporation's business activities carried out? - U.S. dollars - Mexican pesos - Canadian dollars - Japanese yen

U.S. dollars

Are sustainability disclosures voluntary or mandatory? -Mandatory in quarterly disclosures but voluntary in annual disclosures - Mandatory - Voluntary - Voluntary in most countries

Voluntary in most countries

Besides options, what could be another hedging technique that Magnum could adopt to deal with its exposure to foreign exchange risk? - The accounting requirements are too complicated to allow Magnum to use any other type of hedging technique. - Using options to hedge the exposure to foreign exchange risk is the only way. - Another hedging technique would be to use foreign currency forward contracts. - U.S. GAAP does not allow companies to use hedging techniques to hedge foreign currency risk.

Another hedging technique would be to use foreign currency forward contracts.

Besides options, what could be another hedging technique that Magnum could adopt to deal with its exposure to foreign exchange risk? - U.S. GAAP does not allow companies to use hedging techniques to hedge foreign currency risk. - Another hedging technique would be to use foreign currency forward contracts. - Using options to hedge the exposure to foreign exchange risk is the only way. - The accounting requirements are too complicated to allow Magnum to use any other type of hedging technique.

Another hedging technique would be to use foreign currency forward contracts.

The advantages of having a common set of accounting standards globally include all of the following except ______. - avoiding auditing fees - avoiding the GAAP conversion in preparing consolidated financial statements - reducing the problems in evaluating foreign investment opportunities - having one set of financial statements to use to facilitate obtaining financing in different countries

avoiding auditing fees