Final Exam

a highly inflationary economy is defined as a. cumulative 5-year inflation in the recess of 100% b. cumulative 3 year inflation in excess of 100% c. cumulative 3 year inflation in excess of 90% d. cumulative 5 year inflation in excess fo 90%

Cumulative 3-year inflation in excess of 100%

How should liabilities (except for deferred income taxes) be reported by a company using fresh start accounting? A) At the undiscounted sum of future cash payments. B) At book value prior to the reorganization. C) As partially secured liabilities. D) At the present value of future cash payments. E) As unsecured liabilities.

D) At the present value of future cash payments.

On its balance sheet, a company undergoing reorganization should A) Report its assets at fair value, so that financial statement users can estimate whether creditors' claims will be met. B) Report its assets at net realizable value because there is reason to doubt that the organization is a going concern. C) Report its assets as pledged or free. D) Report its assets at current replacement cost. E) Continue to report its assets at book value.

E) Continue to report its assets at book value.

When the hybrid method is used to record the withdrawal of a partner, the partnership A) Revalues assets and liabilities and records goodwill to the continuing partner but not to the withdrawing partner. B) Revalues liabilities but not assets, and no goodwill is recorded. C) Can recognize goodwill but does not revalue assets and liabilities. D) Revalues assets but not liabilities, and records goodwill to the continuing partner but not to the withdrawing partner. E) Revalues assets and liabilities but does not record goodwill.

E) Revalues assets and liabilities but does not record goodwill.

U.S. GAAP provides guidance for hedges of all the following sources of foreign exchange risk except A. Recognized foreign currency denominated assets and liabilities. B. Unrecognized foreign currency firm commitments. C. Forecasted foreign currency denominated transactions. D. Net investment in foreign operations. E. Deferred foreign currency gains and losses.

E. Deferred foreign currency gains and losses.

Criteria that should be considered in determining whether business activities and environments of an operating segment are similar - must be similar in each

1. Nature of products and services provided by segment 2. Nature of production process 3. Types of customers 4. Distribution methods 5. Nature of regulatory environment

A spot rate may be defined as A. The price a foreign currency can be purchased or sold today. B. The price today at which a foreign currency can be purchased or sold in the future. C. The forecasted future value of a foreign currency. D. The U.S. dollar value of a foreign currency. E. The Euro value of a foreign currency.

A. The price a foreign currency can be purchased or sold today.

strike price

The exchange rate at which the option will be executed if the option holder decides to exercise the option

which of the following is not a characteristic of a partnership? a. the partnership itself pays no income taxes b. it is easy to form a partnership c. any partner can be held personally liable for all debts of the business d. A partnership requires written articles of partnership e. each partner has the power to obligate the partnership for liabilities

d. A partnership requires written articles of partnership

where is the translation adjustment reported in the parent company's finical statements? a. net loss in the income statement b. cumulative translation adjustment as a deferred asset c. cumulative translation adjustment as a deferred liability d. accumulated other comprehensive income e. retained earnings

d. accumulated other comprehensive income

what are free assets? a. assets for which net realizable value is greater than historical cost b. assets for which no market exists c. assets for which replacement cost is greater than historical cost d. assets available to be distributed for liabilities with priority and for other unsecured obligations e. assets available to be distributed ot stockholders

d. assets available to be distributed for liabilities with priority and for other unsecured obligations

a proposed schedule of liquidation is developed a. based on the underlying assumption that all future events will result in total gains b. based on the underlying assumption that all partners will remain solvent throughout the liquidation c. on the first day of each month as required by uniform parntherisp act d. based on the underlying assumption that all future events will result in total losses e. on a weekly basis as required by the uniform partnership act

d. based on the underlying assumption that all future events will result in total losses

which is a true statement regarding the fundamental requirement of accounting for derivatives a. derivates are reported on the BS only as an asset b. derivatives are reported on the BS as a liability c. changes in derivative cost basis are recorded in the asset value d. changes in derivative FV are included in comprehensive income e. changes in derivative cost basis are recorded in the liability value

d. changes in derivative FV are included in comprehensive income

what are the two approaches that can be followed in preparing interim reports? a. indiscrete and terminal b. discrete and terminal x. metric an integral d. discrete and integral e. discrete and metric

d. discrete and integral

which one of the following is not required to be disclosed for each operating segment? a. factors used to identify operating segments b. products and services form which each segment derives its revenues c. revenues from eternal customers d. factors used to allocate company wide expenses e. revenues from transitions with other operating segments

d. factors used to allocate company wide expenses

which statement is true regarding a foreign currency option? a. foreign currency gives the holder the obligation to buy or sell foreign currency in the future b. Foreign currency option gives the obligation to only sell foreign currency in the future c. foreign currency option gives the holder the obligation to only buy foreign currency in the future d. foreign currency gives the holder the right but not the obligation to buy or sell foreign current in the future e. foreign currency option gives the holder the obligation to buy or sell foreign currency in the future at the spot rate on the future date.

d. foreign currency gives the holder the right but not the obligation to buy or sell foreign current in the future

under the current rate method, common stock would be translated at what rate? a. beginning of the year rate b. average rate c. current rate. d. historical rate e. composite amount

d. historical rate

which of the following approaches is used in the US in accounting for foreign currency transactions? a. one transaction perspective, defer foreign exchange gains and losses b. tow transaction perspective; accrue foreign exchange gains and losses c. three transaction perspective; defer foreign encage gains and losses d. one transaction perspective; accrue foreign exchange gains and losses e. two transaction perspective; defer foreign exchange gains and losses

d. one transaction perspective; accrue foreign exchange gains and losses

In translating a foreign subsidiary's financial statements, which exchange rate does the current rate 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 change rate for the current year c. calculated exchange rate based on market value d. the exchange rate in effect as fo the balance sheet date e. the exchange rate in effect at the start of the current year

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

the partnership of Clapton, seidel, and Thomas is insolvent and will be unable to pay 30,000 in liabilities that are currently due. what recourse is available to the partnerships creditors? a. they must present equal claims to the three partners as individuals b. they must try to obtain payment from the partner with the largest capital account balance c. they cannot seek remuneration from the partners as individuals d. they may seek remuneration from any partner they choose e. they must present their claims to the three partners in descending order based on the partners capital account balances

d. they may seek remuneration from any partner they choose

a forward contract may be used for which of the following? 1. a FV hedge of an asset 2. cash flow hedge of an asset 3. FV hedge of a liability 4. cash flow hedge of a liability a. 1 and 3 b. 2 and 4 c. 1 and 2 d. 1,3,4 e, 1,2,3,4

e, 1,2,3,4

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

e. a procedure to prepare a foreign subsidiary's finical statements for consolidation

during a partnership liquidation, how are gains and losses recorded? a. accrued in other comprehensive income b. accrued in a liquidation gain/loss account c. directly to retained earnings d. directly to the partners capital accounts, allocated equally e. directly to the partners capital accounts, allocated on the partners profit and loss ratio

e. directly to the partners capital accounts, allocated on the partners profit and loss ratio

which of the following operating segment disclosures is not required by US GAAP? a. interest expense b. intersegment sales c. unusual items d. depletion e. liabilities

e. liabilities

which method is used for remeasuring a foreign subsidiary's financial statements? a. historical rate b. working capital c. current rate d. translation e. temporal method

e. temporal method

What is an option?

gives holder the right but not the obligation to trade foreign currency in the future

which one of the following statements is correct?

if a partner of a liquidating partnership is unable to pay a capital account deficit, the deficit is absorbed by the other partners in the profit and loss ratio of those partners

option premium

the price you pay to buy an option - the function of intrici and time value - intrinsic is equal to the gian that could be relized if the option is exercised immediatley - time = spot rate chan change over time and cause the itnrinsic value to increase - as time goes, the time vlaue decreases

put option

the sale of foreign currency by holder

What is translation?

to prepare worldwide FN ST, US parent must 1. convert foreign GAAP FN ST of its foreign operations into GAAP 2. transalte FN ST from foreing currency into us dollars

hedge

type of investment intended to reduce risk of adverse price movements

the dissolution of a partnership occurs a. only when the partnership sells its assets and permanently closes its books b. only when a partner leaves the partner c. at the end of each year when income is allocated to the partner d. only when a new partner is admitted to the partnership e. when there is any change in the individuals who make up the partnership.

when there is any change in the individuals who make up the partnership.

call option

purchase of foreign currency by holder of option

How do you determine what segments/major customers to disclose?

required whenever 10% or more of company consolidated revenues comes form a single external customer - existence - related revenues - identity of segments generating revenue

what is the fair value of a foreing currency option

sum of th eintrinsic and time value on that date. tiem value decreases to zero over the life of the option

which of the following statements is true concerning the distribution of safe payments?

the distribution of safe payments assumes that nay capital deficit balances will prove to be a total loss to the partnership

Chapter 7 Bankruptcy

- insovlent company to be liquidated - laws provide orderly process for sellign assets and settlign debt 1. court appoints interim trsutee to oversee comapn and liqudiation * perserves assets and prevneitng loss of estate * creidtors are proetected * changin lcoks, seucring assets, and gaining possession of incial records and other documents 2. court call meeting of all creditors who have filed proof of claim * committe of usnecured creditors help protect fincial itnerst of all creditors * they cosntul trusutee nd make reomendaitosn about the estate

Interim reporting? What is it? Approaches? Which ones are required? revenues? COGS? other items? change in accounting? minimum required?

- sec requires public companies to provide unaudited FN ST on a quarterly basis - discrete - account period stands on its own - integral - treat accounting period as a portion of a longer period - FASB requires integral - recognized same as annual - long term contracts = recognized using seem methodology used on an annual basis - recognize projected losses on long term contracts to the full extent in the interim period - require several modification procedures used on COGS annually related to: 1. LIFO liquidation 2. application of lower cost or NRV 3. standard costing - income taxes composed on the estimated annual effective tax rate - discontinued operations reported in net income on the net of tax basis - retrospective application of the new acing principle to prior periods FN ST - minimum 1. sales or revenues 2. EPS basic and diluted 3. seasonal revenues and expenses 4. significant changes in estimates or provision of income taxes 5. disposal of a component of business an unusual occurring items 6. continent items 7. changes in accounting principles or estimates 8. significant changes in finical position

require segment discourse

1. General information · Factors used to identify segment · Types of products & services which segment makes revenue from 2. Segment profit or loss - revived by chief operating decision maker · Revenues from external customers · Revenues form transactions with other segments · Interest revenue and expense · Deprecation, depletion, amortization · Income tax expense or benefit · Equity in NI of investees · Unusual items · Other significant noncash items 3. Total segment assets · Investment in equity method · Expenditures or additions to long lived assets 4. recollimations to consolidated total 5. explanation of measurement

to account for a forward contract cash flow hedge of a foreign currency denominated asset or liability at the balance sheet date

1. adjust hedged asset or liability to FV, with counterpart (change in FV) reported as foreign exchange gain or loss in net income 2. adjust forward contract to FV (either an asset or liability), with counterpart (change in FV_reproted in AOCI 3. transfer an amount from AOCI to net income to offset the foreign exchange gain or loss on the hedged asset or liability reoncigzed in 1 and 4. transfer from AOCI to net income (as discount expense or premium revenue) the current periods amortization fo discount or premium

FASB states segment reporting provides information to help users of finical statements to:

1. better understand enterprise performance 2. better assess entity prospects for future net cash flows 3. make more informed judgments about the enterprise

to account for a forward contract cash flow hedge of a foreign currency denominate asset or liability at initiation date requires which of the following?

1. recognize the transaction (sale or purchase) and foreign currency denominated asset or liability 2. no entry related to forward contract (zero fair value)

Payment Priority

1st- Administrative Expenses (Wages, real estate maintenance, fees) 2nd- Unsecured claims 3rd- Employee back wages 4th - Claims related to employee benefit plan 5th - Any residual value that remains after all creditors' claims have been met

Where is the remeasurement gain or loss reported in the parent company's financial statements? A) Net income/loss in the income statement. B) Cumulative translation adjustment as a deferred asset. C) Cumulative translation adjustment as a deferred liability. D) Other comprehensive income. E) Retained earnings.

A) Net income/loss in the income statement.

During a reorganization, how should interest expense be reported on the financial statements? A) On the income statement, but not classified as a reorganization item. B) On the income statement as a separate reorganization item. C) On the balance sheet as a prepaid expense. D) As a debit directly to retained earnings. E) On the balance sheet as an intangible asset.

A) On the income statement, but not classified as a reorganization item.

How should revenues be recognized in interim periods? A. In the same way as they are recognized on an annual basis. B. On the cash basis. C. On an annualized basis. D. On a seasonal basis. E. There are no revenues recognized in interim periods.

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

what is a company's functional currency A. The currency of the primary economic environment in which it operates. b. the currency of the country where it has its headquarters c. the currency in which it prepares its financial statements d. the reporting currency of its parent for a subsidiary e. the currency it chooses to designate as such

A. The currency of the primary economic environment in which it operates.

Partnerships have alternative legal forms including all of the following except: A) General Partnership. B) Limited Partnership. C) Subchapter S Partnership. D) Limited Liability Partnership. E) Limited Liability Company.

C) Subchapter S Partnership.

Generally Accepted Accounting Principles require a US corporation to disclose the following disaggregated information for each operating segment, except: A. revenues from external customers B. unusual items C. COGS D. Depreciation expense E. Intersegment revenues

C. COGS

What is a spot rate?

The price at which a foreign currency can be purchased or sold today

forward rate

The price available today at which foreign currency can be purchased or sold sometime in the future

The forward rate may be defined as

The price today at which a foreign currency can be purchased or sold in the future.

Cash Flow Hedge

Used by companies to hedge exposures to cash flow risk, which results from the variability in cash flows. Companies account for derivatives used in cash flow hedges at fair value on the balance sheet, but they record gains or losses in equity, as part of other comprehensive income.

which of the following is a criterion for determining whether an operating segment I separately reportable? a. an operating segment assets are 10% or more of combined segment assets b. operating segments assets are 10% or more of consolidated assets c. operating segments assets are 10% or more fo combined segment liabilities d. operating segments assets are 10% or more of consolidated liabilities e. operating segment assets are 10% or more of corporate assets

a. an operating segment assets are 10% or more of combined segment assets

at the end o a partnership liquidation, how is any remaining cash distributed to partners? a. based on the individual partners' final capital balances b. based on their share of profits and losses c. equally d. based on the length of time the partner was with the partnership e. based on the initial investment made by each partner

a. based on the individual partners' final capital balances

which of the following is not one of the criteria management should consider in determining whether business activities and environments of an operating segment are similar? a. geographical location of the operations b. nature of the production process c. distribution methods d. nature of the regulatory environment if applicable e. type or class of customer

a. geographical location of the operations

a company is insolvent when: a. it is unable to pay debts as the obligations come due b. it is more likely than not that it will not be able to pay debts within a reasonable period of time following the date such obligations become due c. it is unable to timely remit payment on more than two thirds of its outstanding obligations measured on a rolling three month basis d. it is unable to pay debts within 90 days following the close of the company's reporting year, whether such year is a Caldara of fiscal year e. it is in default on one third or more of its outstanding debt obligations

a. it is unable to pay debts as the obligations come due

how are assets and liabilities value don a statement of finical affairs

assets - NRV Liabilities - Amount required for settlement

according to U.S. GAAP, when the local currency is the functional currency, 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 e. noncurrent rate method

b. current rate method

what information does US GAAP require to be disclosed for a major customer a. identity of the customer b. operating segment reporting sales to the customer c. geographic area of the customer d. specific products or services purchased by the customer e. length of time the customer has been a customer of the company

b. operating segment reporting sales to the customer

which test must a company use to determine which operating segments require separate disclosure? a. Revenue test and asset test b. revenue, profit or loss, and asset attest c. revenue test and profit or loss test d. profit or loss and asset e. revenue, asset, and liability test

b. revenue, profit or loss, and asset attest

which of the following statements is true regarding the reporting of revenues in an interim report a. revenues should be recognized on the income tax basis for interim reporting b. revenues should be recognized in interim periods in eh same way as they are on an annual basis c. projected losses on long term contracts should be referred to the annual report d. the percentage of completion method of reporting long term contusion projected is not an acceptable method for interim reporting

b. revenues should be recognized in interim periods in eh same way as they re on an annual basis

When using the current rate method, the translation adjustment from translating a foreign subsidiary's financial statements should be shown as a. asset or liability (depending on the balance) in the consolidated BS b. revenue expense I the consolidated income statement c. component of stockholders equity int eh consolidate balance sheet d. component of cash flows from financing activities in the consolidated statement of cash flows e. an element of the notes which a company the consolidated financial statements

c. component of stockholders equity in the consolidate balance sheet

a chapter 7 bankruptcy is a(n): a. involuntary reorganization b. bankruptcy forced by a company's creditors c. liquidation d. bankruptcy in which all creditors receive payment in full e. voluntary reorganization

c. liquidation

the statement of financial affairs should be prepared: a. under the going concern assumption b. under the concept of conservatism c. under the assumption that liquidation will occur d. under the continuity concept e. only for a company in chapter 7 bankruptcy

c. under the assumption that liquidation will occur

what is a future contract

legal agreement to buy or sell fincial commodity at specific amonunt on specific date. - accounted for as derivatives

which of the following is not a responsibility of the bankruptcy trustee?

liquidate common stock of the company

how to determine if the segment is reportable

meet only one test 1. revenue - revenues are 10 percent or more of the combine revenue of all reported operating segments 2. profit or loss - profit or loss is 10% or more of combine profit or loss of all segments 3. asset - assets are 10% or more of combined assets of all segments

Hedge accounting

must meet three conditions 1. derivative used to hedge either cash flow or FV exposure to foreign exchange risk 2. derivative is highly effective in offsetting changes in cash flows or FV related to the hedged item 3. derivative is properly documented as a hedge

what is a forward contract

negoitiated by firm with bank to echange forieng currency for dollars or vice versa, on specified future date at predetemriend rate - can be written for whatever currency and for wahtever future date foward>spot = prmeium Foward<spot=discount

all of the following items are liabilities with priority except:

obligations arising between the date an order of relief is issued and the date of final realization of assets

in the money

positive intrinsic value