What is the likely outcome of using performance measures that subsidiary managers
perceive to be unachievable?
A. Frustrated managers
B. Diligent attention to operational efficiency
C. Success
D. Optimal decision-making
Answer:
What is another name by which corporate social reporting (CSR) is also known?
A. Corporate integrity reporting
B. Environmental, Social, and Governance (ESG) reporting
C. Corporate image reporting
D. Nonmonetary bottom line reporting
Answer:
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. How will
subsidiary managers in the decentralized organization view this decision by parent
company management?
A. They will embrace it whole-heartedly because corporate profits will increase.
B. The manager of Subsidiary Y will be concerned about the decline in Subsidiary Y’s
profit and the effect this will have on his/her bonus.
C. They won’t mind because the intercompany transaction will still occur.
D. They won’t notice because all decisions in the decentralized organization are made
by the parent.
Answer:
De facto harmonization refers to the process of:
A. making accounting practices consistent across countries.
B. making accounting regulations consistent internationally.
C. resolving accounting differences through litigation.
D. creating one set of accounting standards.
Answer:
The concepts of professionalism, uniformity, conservatism, and secrecy are classified in
Gray’s framework for accounting system development as:
A. accounting values.
B. accounting systems.
C. institutional consequences.
D. cultural dimensions.
Answer:
Of the signals that may cause a taxing authority to audit a company’s transfer price,
which one is the most important?
A. The nature of the business of the multinational corporation
B. Unexpectedly low profit
C. Profits higher than expected for a specific industry
D. Parent company located in an emerging economy
Answer:
In their research published in 1988 related to translating foreign currency financial
statements, Doupnik and Evans found that U.S. multinationals were biased in favor of
using a foreign currency as the functional currency. What reason did the researchers
give for this management decision?
A. It was easier than proving to the FASB that a subsidiary’s functional currency was
the U.S. dollar.
B. Doing so allowed companies greater latitude in selecting the method of translating
foreign currency financial statements.
C. This allows the use of the current method, which defers recognizing translation
gains or losses in income.
D. This allows the use of the temporal method, which defers recognizing transaction
adjustments in income.
Answer:
Under IAS 18, which of the following is an example of retention of significant risks and
rewards by the seller?
A. The buyer has no right to rescind the purchase.
B. The seller is under no obligation for satisfactory performance not covered by normal
warranties.
C. Goods are sold subject to installation, but installation is not a significant part of the
contract and has not yet been completed.
D. Receipt of revenue by the seller is contingent on the buyer generating revenue
through its sale of the goods.
Answer:
Under both IFRS and U.S. GAAP, which of the following methods should be used by
an investing entity to report accounting for investment in nonconsolidated subsidiaries?
A. Equity method
B. Fair value
C. Proportionate consolidation
D. Parent concept
Answer:
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
B. They are not recognized until the options are exercised
C. Retained Earnings
D. None of the above
Answer:
Withholding taxes on dividends paid by a foreign subsidiary to a parent can be reduced
by:
A. raising prices paid by the parent for goods it acquires from the subsidiary.
B. raising prices paid by the subsidiary for goods it acquires from the parent.
C. negotiated transfer pricing.
D. reducing prices charged by the parent for good transferred to the subsidiary.
Answer:
Under IAS 38, which of the following items might qualify for capitalization as
internally generated intangible assets?
A. Brands
B. Publishing titles
C. Market share
D. Customer lists
Answer:
Which of the following is a difference among the U.S. and other Anglo-Saxon countries
in terms of accounting standards?
A. The U.S. does not adhere to the “true and fair view” approach.
B. The U.S. is more private-sector oriented.
C. The U.S. always follows a conceptual framework when developing accounting
standards.
D. The U.S. standards are becoming more rigid than the U.K. standards.
Answer:
The extent to which hierarchy and unequal authority distribution in institutions and
organizations are accepted within a culture is referred to as:
A. uncertainty avoidance.
B. masculinity.
C. individualism.
D. power distance.
Answer:
Which of the following statements about China is correct?
A. It has not enacted any legislation to allow tax holidays.
B. In 2002, it surpassed the U.S. as the largest recipient of foreign direct investment.
C. It is isolationist and shuns foreign investment within its borders.
D. None of the above statements is correct.
Answer:
What is the effect of conducting a sensitivity analysis in capital budgeting?
A. It helps analysts to determine if results are particularly affected by specific
estimates.
B. It complicates the process of making a decision when there are conflicting signals.
C. Preferences for one capital investment alternative over another will change.
D. All of the above
Answer:
According to (Internal Revenue Service) IRS code Section 482, what is the standard
used by the IRS for international transfer pricing?
A. Cost-based prices
B. Discretionary prices
C. Negotiated prices
D. Arm’s-length prices
Answer:
With respect to post-employment medical benefits, U.S. GAAP:
A. does not recognize the concept of post-employment medical benefits.
B. has considerably less guidance than IAS 19.
C. follows the guidance of IAS 19.
D. has considerably more guidance than IAS 19.
Answer:
In January 2003, the FASB released Interpretation 46, “Consolidation of Variable
Interest Entities,” which:
A. re-emphasized the need for 50% stock ownership to exert effective control.
B. expanded U.S. GAAP to consider effective control rather than legal control for
consolidated financial statements.
C. took a “form-over-substance” approach to define control in determining
requirements for consolidated financial statements.
D. defined effective control as ownership of 30% or more of another entity’s voting
shares.
Answer:
If most of a country’s business financing comes from families, banks, and the
government, what should we expect in terms of information disclosure to the public?
A. Relatively little disclosure because the public isn’t a major factor
B. A great deal of disclosure because it will be the only way for interested parties to
learn about the company
C. Complete openness of accounting records
D. No disclosure at all
Answer:
Which country has not ratified the 2005 Kyoto Protocol?
A. Japan
B. France
C. The U.S.
D. Spain
Answer:
What is the cause of balance sheet exposure?
A. Converting subsidiary account balances to balances denominated in the parent
company’s currency at historical exchange rates
B. Completing international transactions in currency other than the currency of the
home company
C. Translating subsidiary account balances to amounts denominated in the parent
company’s currency
D. None of the above
Answer:
Translating foreign financial statements into a convenience language:
A. eliminates all readability problems for a financial analyst.
B. does not always clarify accounting terminology unique to a particular country.
C. is easily and inexpensively done when the convenience language is English.
D. is required for all multinational corporations.
Answer:
IAS 32 defines a financial instrument as:
A. the currency of a foreign country in which the enterprise does business.
B. a certified check.
C. any contract that gives rise to a financial asset of one entity and a financial liability
or equity instrument of another entity.
D. a recognized stock exchange.
Answer:
Which of the following is NOT a concern identified in the 2008 IFAC report “Financial
Reporting Supply ChainCurrent Perspectives and Directions”?
A. Governance in name, but not in spirit
B. Overregulation
C. The development of a checklist mentality
D. Trend towards less disclosure and transparency in business and financial reporting
Answer:
Which of the following financial statements is NOT universally included in annual
reports?
A. Balance sheet
B. Statement of cash flows
C. Income statement
D. All of the above statements are included in annual reports worldwide.
Answer:
What recent event has given the People’s Republic of China an incentive to harmonize
its accounting standards?
A. Collapse of Arthur Andersen
B. Membership in the NATO
C. Admission to the WTO
D. Establishment of the CSRC
Answer:
On December 1, 20×1 Pimlico made sales to a customer in India and recorded Accounts
Receivable of 10,000,000 rupees. The customer has until March 1, 20×2 to pay. On
December 1, 20×1, Pimlico paid $500 for a put option to sell rupees at a strike price of
$2.30 per 100 rupees on March 1, 20×2, which was the spot rate on December 1, 20×1.
On December 31, 20×1, the spot rate was $2.80 per 100 rupees and the option premium
was $0.004 per 100 rupees.
What is the foreign currency exchange gain or loss on December 31, 20×1?
A. $50,000 loss
B. $50,000 gain
C. $10,000 gain
D. $10,000 loss
Answer:
Essco Ltd, a foreign subsidiary of Peako Corp., has written down its inventory to
current market value under a “lower of cost or market” rule. When consolidating
Essco’s balance sheet into Peako’s balance sheet using the current rate method, what
exchange rate should be used for the inventory under the temporal method?
A. Historical rate
B. Current rate
C. Average rate
D. Cannot be determined with the information given
Answer:
IFRS 3, issued in 2004, eliminated the use of which concept for reporting assets and
liabilities of an acquired company on the parent company’s consolidated financial
statements?
A. Parent company concept
B. Economic concept
C. Entity concept
D. All of the above
Answer:
The IASB has permitted the translation of International Financial Reporting Standards
(IFRS) into how many languages?
A. None. They are only written in the official language of the IASB.
B. More than 30
C. More than 100
D. Only six languages: Chinese, English, German, Japanese, Russian, and Spanish
Answer:
Which of the following is a limitation of SEC requirements for audit committee
membership?
A. The expanded responsibilities make service on the committee less desirable to
competent directors.
B. External auditors are unwilling to report to an independent audit committee.
C. The audit committee compromises the external auditor’s independence.
D. Only the United Kingdom and the United States require audit committees, putting
corporations in these countries at a disadvantage.
Answer: