Global Final

How should stock options be accounted for under IASB standard on stock options (IFRS 2)?

B. A compensation expense is recorded based on the value of the options expected to vest as of the date the options are granted.

Under IAS 1, Presentation of Financial Statements, how must deferred taxes be classified on the balance sheet?

B. As always a noncurrent asset or a noncurrent liability

What kind of exposure exists for recognized foreign currency assets and liabilities?

B. Cash flow exposure

The term "provision" as it is used in IAS 37, is most closely related to what term in U.S. GAAP?

B. Contingent liability, where the outflow of resources is "probable"

The central bank of Country X buys and sells its own currency to ensure that the currency is always exchanged in a ratio of 2:1 with the currency of Country Y. What can we conclude about these two currencies?

B. Country X has pegged its currency to the currency of Country Y.

Under a joint Exposure Draft issued by the IASB and FASB in June 2010, 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?

B. 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.

Under IFRS 2, Share-based Payment, what approach is used to account for the transaction?

B. Fair value approach

In hedge accounting, which of the following exposure should be hedged by foreign currency derivative?

B. Fair value exposure

Which of the following statements is true about hedge accounting under U.S. GAAP?

B. If a derivative qualifies as a cash flow hedge, the hedging instrument is adjusted to fair value on each balance sheet date.

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?

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

Under U.S. GAAP, where are changes in the fair value of derivatives reported?

A. As part of "Accumulated Other Comprehensive Income" on the Balance Sheet

The primary difference between IAS 37 and U.S. GAAP concerning the treatment of contingent liabilities pertains to?

A. Definition of terms

What is the journal entry required to recognize a deferred tax asset of $50,000?

A. Dr. Deferred Tax Asset $50,000, Cr. Income Tax Benefit $50,000

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?

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

When accounting for forward contracts, what is meant by the term "executory contract"?

A. No cash changes hands

Under IAS 39, Financial Instruments: Recognition and Measurement, which of the following is NOT a category into which a financial asset must be classified?

A. Property, plant, and equipment

What has occurred when one company purchases the right to buy a foreign currency sometime in the future at an exchange rate quoted today?

A. The company has acquired a call option.

What is foreign exchange risk exposure?

A. The possibility of a loss because of changes in the value of a foreign currency

What is a "foreign exchange rate?"

A. The price to buy a foreign currency

According to IAS 37, how should contingent assets be recognized?

A. They should be disclosed in the notes to the financial statements if the inflow of resources is probably.

Which of the following is a difference between IAS 37 and U.S. GAAP with respect to restructuring provisions?

A. U.S. GAAP does not allow recognition of a restructuring provision until a liability has been incurred.

Under U.S. GAAP, with respect to equity-settled share-based payments, if the fair value of the equity instrument is used, the value is determined:

A. at the earlier of the date a commitment for performance is reached or the date the services are actually completed.

Under U.S. GAAP, foreign exchange losses should be recorded by:

A. debiting "Foreign Exchange Loss".

Under U.S. GAAP, when new debt is issued for old debt:

A. extinguishment costs are deferred and amortized over the term of the new debt.

Under IAS 12, current and deferred taxes are measured on the basis of:

A. rates that have been enacted or substantively enacted by the balance sheet date.

The number of Japanese yen (¥) required today to buy one U.S. dollar ($) today is called:

A. the spot rate.

SilverStone Inc. supplies emission systems worth $100,000 to Horizon Enterprises. As per the terms of sale contract, SilverStone takes back all unused emission systems. Horizon estimates that 5% of the emission systems will be returned. Under IAS 18, only four out of the five conditions for recognizing revenue from the sale of goods are met as economic benefits of 95% of sale will flow to SilverStone. How much revenue should be recognized by SilverStone Inc.?

B. $75,000 of the sales price can be currently recognized as revenue and $25,000 will be treated as a deferred revenue (liability).

In the years between 1990 and 2001 when global gross domestic product rose 27%, what was the growth in global exports?

B. 75%

Why is the accrual method of accounting for unrealized foreign exchange gains sometimes criticized?

B. It violates the principle of conservatism.

Under IAS 37, inflows of resources that are "virtually certain" to be received should be?

B. Recognized as assets

What has occurred when one company arranges to buy a foreign currency sometime in the future, at an exchange rate quoted today?

B. The company has entered a forward contract.

What is the intrinsic value of a foreign currency option?

B. The gain that could be realized if the option was exercised immediately

What is "asset exposure" to foreign exchange risk?

B. The possibility that an asset denominated in a foreign currency will change in value because of a change in the foreign exchange rate

Under International Accounting Standards Board rules, what method is required to account for foreign currency transactions?

B. The two-transaction perspective must be used.

Under U.S. GAAP, what method is required to account for foreign currency transactions?

B. The two-transaction perspective must be used.

Under IAS 18, which of the following is NOT a condition that must be met in order for revenue from the sale of goods to be recognized?

B. There must be a binding, written contract between the seller and the buyer.

What is the requirement for reporting derivatives under international accounting standards and U.S. GAAP?

B. They must be shown on the balance sheet at fair value.

Under IFRS 2, with respect to cash-settled share-based payments, when an employee has received stock appreciation rights, how is the fair value of those rights measured?

B. Using an option pricing model

How is the fair value of a foreign currency option calculated?

B. Using the modified Black-Scholes pricing model

Under the IASB's exposure draft, Income Tax, how would the term "substantively enacted", as it applies to tax laws, be determined?

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

Sigma Company issued $12 million in 10 percent bonds 6 years ago currently having a carrying amount of $10.7 million. The bond agreement allows for early extinguishment by Sigma Company beginning in the current year. Sigma's investment bank has arranged for the company to issue $10 million of new 8 percent bonds at face value to a group of investors. The proceeds will be used to extinguish the 10 percent bonds. The banking, legal, and accounting costs to execute the transaction total $200,000. The journal entry to record the debt extinguishment will include:

B. a credit to Gain on Extinguishment of 10% Bonds for $500,000.

How should discounts or premiums on forward contracts be treated if the derivative is hedging a foreign-currency-denominated asset?

C. Amortized over the life of the forward contract

What kinds of temporary differences related to income taxes can arise under IFRS that don't occur under U.S. GAAP?

C. Book and tax differences related to the revaluation of property, plant, and equipment for book purposes and cost method for tax purposes.

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?

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

What information is needed to determine the fair value of a foreign currency forward contract?

D. All of the above information is needed

Under U.S. GAAP, which of the following conditions must be met to qualify for hedge accounting?

D. All of the above must be met in order to qualify for hedge accounting.

How does U.S. GAAP require the prior service cost related to the retirees to be recognized?

D. Amortize over remaining expected life of the retirees

Under both IFRS and U.S. GAAP, in an equity-settled share-based payment transaction, how are such payments to non-employees measured?

D. At the fair value of goods or services received, if a reliable determination is available—otherwise, the fair value of the equity instrument.

What is a contingent asset?

D. It is a probable asset, arising from past events, whose existence is yet to be confirmed definitely by a future event.

Under IAS 32, which of the following is a financial asset?

D. Loans to other entities

Why must the two-transaction perspective be used for recording foreign currency transactions under U.S. GAAP?

D. Management made two decisions: one to sell and another to extend credit in a foreign currency.

Which of the following statements is true about the Euro?

D. None of the statements above is true.

A bank exchanging foreign currency makes its profit in what manner?

D. On the difference between the buying and selling rates

Under IFRS 2, with respect to choice-of-settlement share-based payments, if the supplier chooses the cash settlement, the entity is deemed to have issued a compound financial instrument consisting of debt and equity. When cash is received, how does the supplier applies it?

D. Only against the debt portion

Under IAS 18, which of the following is an example of retention of significant risks and rewards by the seller?

D. Receipt of revenue by the seller is contingent on the buyer generating revenue through its sale of the goods.

What kind of exposure exists for foreign currency firm commitments?

C. Both fair value exposure and cash flow exposure

Why was there very little fluctuation in the foreign exchange rate in the period 1945-1973?

C. Countries linked their currency to the U.S. dollar, which was backed by gold reserves.

On May 1, 20x1, Ustar purchased a put option to sell £50,000 on April 30, 20x2 at a strike price equal to $2, which was the spot rate on May 1, 20x1. Ustar paid a premium of $0.01 per pound. How should the option be recorded on May 1, 20x1?

C. Debit Foreign Currency Option for $500.

Under IAS 39, Financial Instruments: Recognition and Measurement, which of the following terms describes the removal of a financial asset or liability from the balance sheet when certain appropriate criteria have been met?

C. Derecognition

54. Under U.S. GAAP, what method of amortizing discounts or premiums on forward contracts must be used?

C. Effective interest rate method or straight line method

What is true about both IFRS and U.S. GAAP with respect to service contracts?

C. IFRS allows the use of the percentage-of-completion method while U.S. GAAP does not.

Under IAS 32, how should an equity instrument be classified?

C. If it contains a contractual obligation that meets the definition of a financial liability, it should be classified as a liability.

Under IFRS 2, with respect to choice-of-settlement share-based payments, if it is the entity that has the right to choose between equity settlement and cash settlement, when must the entity choose the cash settlement?

C. If the entity has a present obligation to settle in cash

What term is used for an option with a positive intrinsic value?

C. In the money

Which of the following is done when accounting for a cash flow hedge, but is not done when accounting for a fair value hedge?

C. Increases or decreases in a derivative's fair value are recorded in accumulated other comprehensive income.

What is a foreign currency transaction?

C. It is a business deal denominated in a currency other than a company's domestic currency.

Under IAS 1, Presentation of Financial Statements, which of the following is NOT a criterion in the definition of a current liability?

C. It is a liability that does not have the right to defer until 18 months after the balance sheet date.

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?

C. It should derecognize these receivables.

According to the World Trade Organization, what was the size of international trade in 2011?

D. $18,000,000,000,000 (18 trillion dollars)

IAS 18, Revenue, covers which types of revenues?

D. All of the above

Under IAS 12, Income Taxes, which of the following issues are covered?

D. All of the above

Under IAS 19, Employee Benefits, which of the following benefits are covered?

D. All of the above

Under IAS 32, which of the following is a financial liability?

D. All of the above

Under IAS 39, under what circumstances will derecognition of a financial liability occur?

D. All of the above

Which of the following represents a difference in the classification of current liabilities between IFRS and U.S. GAAP?

D. All of the above

Which of the following is NOT a share-based payment transaction under IFRS 2?

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

Under IAS 18, when it is probable that the economic benefits of interest, royalties, and dividends will flow to the enterprise and can be measured reliably, how should revenue be recognized?

D. All of the above govern revenue recognition under these circumstances.

Under U.S. GAAP, what is the proper treatment of unrealized foreign exchange gains?

D. They should be recognized in income on the date the exchange rate changes.

How does U.S. GAAP differ from IFRS with respect to cash-settled share-based payments?

D. U.S. GAAP, under certain circumstances, may treat such payments as equity.

Northland Corporation recorded £1,000,000 in Accounts Receivable for sales to customers in the United Kingdom and recorded Accounts Payable of 2,000,000 Yuan for product purchased from China. If Northland recorded a foreign currency exchange loss on its receivables and a foreign currency gain on its payables, what must have happened to each currency?

D. Yuan depreciated, Pound depreciated

With respect to post-employment medical benefits, U.S. GAAP:

D. has considerably more guidance than IAS 19.

If a derivative is not designated as a hedge:

D. the change in fair value must be recognized in net income when it changes.

A noncancelable sales order that specifies foreign currency price and date of delivery is known as a:

B. foreign currency firm commitment.

For an upcoming trip, Pat wants to buy Euros at the local bank when the current exchange rate quoted on OANDA.com was $1.563 per €1. What should Pat plan to pay for €1,000?

B. more than $1,563

Which of the following statements is true of IAS 19?

C. Its revised version became effective in the year 2013.

What is "hedge accounting?"

C. Matching gains or losses from hedging with losses or gains from the risk being hedged.

What is the primary difference between a cash flow hedge and a fair value hedge?

C. The cash flow hedge must completely offset the variability in cash flow from the foreign currency receivable or payable.

What is a "strike price?"

C. The exchange rate that will be used if a foreign currency option is executed

According to IAS 37, with respect to onerous contracts, a provision should be recognized for "unavoidable costs of the contract", which is: the contract", which is:

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

Why is it difficult to compare IAS 18, Revenue to U.S. GAAP?

C. There is no single standard in U.S. GAAP that deals solely with revenue.

How should U.S. companies record receivables and payables from international trade that are denominated in foreign currencies?

C. There should be separate receivable and payable accounts for each currency that is used by the company.

Under IAS 37, how are contingent liabilities treated in the financial statements?

C. They are disclosed in the notes to the financial statements when there is more than a remote possibility of an outflow of resources

Under U.S. GAAP, what is the proper treatment of unrealized foreign exchange losses?

C. They should be recorded on the Income Statement in the period the exchange rate changes.

Which of the following statements is true of the treatment of actuarial gains and losses under IFRS and U.S. GAAP?

C. U.S. GAAP allows a choice between immediate recognition in other comprehensive income or in net income.

IAS 32 defines a financial instrument as:

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

Excel Sources Inc. is a U.S. incorporated company. Due to change in exchange rate, it receives $150,000 as payment against a sale of $165,000. Under the two-transaction perspective:

C. foreign exchange loss will be recorded for $15,000.

When a currency is allowed to increase or decrease freely according to market forces, the currency is said to:

C. have independent float.

Under U.S. GAAP, a deferred tax asset must be realized when:

C. realization is more likely than not.

The number of U.S. dollars ($) today to buy one U.K. pound (£) six months from now is called:

C. the forward rate.

When two parties from different countries enter into a transaction:

C. the two parties are free to decide the currency that should be used to settle the transaction