Which of the following statements is true about U.S. taxation of foreign subsidiaries?
A. The U.S. income taxes income generated by subsidiaries incorporated in foreign
countries.
B. U.S. multinationals do not pay tax on their worldwide income if incorporated in the
U.S.
C. Transfer pricing will eliminate taxes by the U.S. government on multinational
corporations.
D. U.S. tax on foreign operations does not have to be paid until the income is brought
back to the U.S.
Answer:
If an analyst saw a “Monetary position loss” in a company’s annual report, where would
that company be located?
A. The Netherlands
B. Mexico
C. China
D. Sweden
Answer:
How does IAS 34 (Interim Financial Reporting) differ from U.S. GAAP?
A. U.S. GAAP has no guidance for interim financial reporting.
B. U.S. GAAP treats interim periods are an integral part of the full year.
C. U.S. GAAP is the same as IAS 34.
D. U.S. GAAP requires that an interim period be projected pro rata for the entire year.
Answer:
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?
A. Current rate
B. Historical rate
C. Average rate
D. Cannot be determined with the information given
Answer:
What is cultural proximity?
A. The extent to which the host cultural ethos permits adoption of the parent company’s
organizational culture.
B. Countries located on the same continent.
C. Relative importance of individual differences among units of a multinational
corporation.
D. A short geographic distance between the host country of one subsidiary and the host
country of another subsidiary.
Answer:
With regard to convergence of accounting for business combinations between IFRS and
U.S. GAAP, the major changes to U.S. GAAP include:
A. classifying noncontrolling interests as assets.
B. use of acquisition method for business combination.
C. recognizing in-process research and development costs as expense.
D. recognizing incurred research costs as liabilities.
Answer:
According to European Union directives, how frequently must its publicly traded
corporations publish financial reports?
A. Annually
B. Semiannually
C. Quarterly
D. Monthly
Answer:
How should the cost of borrowing funds to acquire or construct property, plant, and
equipment be accounted for under IASB rules, as revised in 2007?
A. It should be expensed in the period incurred.
B. It should be added to the other costs of acquiring fixed assets to determine the
amount for the balance sheet.
C. Both methods are acceptable.
D. Neither method is acceptable under IASB rules.
Answer:
A Japanese branch of a U.S. corporation paid $4,200,000 in taxes to the government of
Japan on income it generated there. The corporation is subject to a 35% tax rate in the
U.S.
How much foreign tax credit can be taken in calculating the taxes owed to the U.S. on
$10,000,000 of Japanese branch income?
A. $4,200,000
B. $3,500,000
C. $0
D. $7,000,000
Answer:
Dynasty Industries reported total liabilities of ¥9,000,000 and total assets of
¥12,000,000. If the exchange rate changes to ¥110 = $1, what will be the change in the
debt ratio assuming the account balances remain constant?
A. Decrease by 8.3%
B. Increase by 8.3%
C. Decrease by 9.1%
D. No change
Answer:
How must Goodwill resulting from business combinations be treated under U.S.
GAAP?
A. It must be amortized over a period of no more than 40 years.
B. It must be expensed when it is acquired.
C. It must be written down when its fair value is less than its carrying value.
D. It must be written down in no less than 5 years and no more than 40 years.
Answer:
Which of the following is true of CICPA and CACPA in the People’s Republic of China
(PRC)?
A. These are two translations of a single Chinese professional association from
Mandarin to English.
B. The CICPA was the professional association for accountants and the CACPA is the
professional association for auditors.
C. The CICPA was the professional association for CPAs in private practice and the
CACPA is the professional association for accountants in public practice in the PRC.
D. None of the statements above is true.
Answer:
Which of the following is true about financial statement disclosure?
A. When account balances are aggregated, the analyst has the greatest amount of
information.
B. The amount and types of financial statement disclosure vary widely from one
country to another.
C. The concept of full disclosure has been universally adopted around the world.
D. An analyst can always disaggregate financial statement disclosures to obtain needed
information.
Answer:
ABCO Corporation has its two wholly owned subsidiaries, Delta and Parry, in Country
A and Country B, respectively. Parry purchases a part for its production from Delta.
Country B has a higher tax rate than Country A. To minimize the corporation’s overall
income tax, how should ABCO set its transfer prices between its subsidiaries?
A. Delta should sell parts to Parry at low prices.
B. Delta should sell parts to Parry at high prices.
C. It doesn’t matter what transfer price is used because the subsidiaries are part of the
same company.
D. Transfer pricing does not affect the total tax paid by the corporation.
Answer:
What reason can be given for the importance of internal auditing in multinational
corporations?
A. A serious lack of external auditors available to audit an international company
B. A growing demand for risk management skills possessed by internal auditors
C. Reluctance by multinational corporations to hire external auditors to comply with
international regulations
D. Decline in the reputation of external auditors
Answer:
What is the “Safe Harbor Rule?”
A. If a foreign tax rate is 90% or more of the U.S. corporate tax rate, no part of a
controlled foreign corporation’s income is considered Subpart F income.
B. This is a guideline issued by the OEDC that encourages developed countries to open
branches in underdeveloped countries.
C. If a controlled foreign corporation’s Subpart F income is less than 10% of its total
income, it will not be taxed currently by the U.S. government.
D. If a controlled foreign corporation’s Subpart F income is less than 10% of its total
income, it will not be taxed until dividends are received by the parent.
Answer:
Under FASB ASC 830, Foreign Currency Matters, what is the definition of “functional
currency?”
A. The primary currency used by the parent company
B. The currency that minimizes the translation adjustment on the consolidated financial
statements
C. The currency in which the subsidiary does its financial reporting
D. The primary currency of the foreign entity’s operating environment
Answer:
Implementing multinational corporate strategy to influence human behavior in a
positive way should include:
A. a target for managers that is possible under ideal conditions.
B. consideration of cultural differences across units.
C. all exchange rate gains and losses.
D. measures of profit, residual income, and return on investment for all units.
Answer:
Assets are commonly shown in order of their liquidity, or in reverse order of their
liquidity. What is liquidity?
A. Liquidity refers to how easily the assets are converted to cash.
B. Liquidity means that assets are inflation-adjusted.
C. Liquidity refers to whether the asset is depreciable or not.
D. Liquidity means that the assets are closely matched to specific liabilities.
Answer:
What is another name by which corporate social reporting (CSR) is also known?
A. Corporate integrity reporting
B. Corporate image reporting
C. Ecological footprint reporting
D. Nonmonetary bottom line reporting
Answer:
While the U.S. has tax treaties with more than 50 countries, it does not have a treaty
with Brazil, which is a major recipient of U.S. foreign direct investment. What is the
reason for a lack of a U.S.-Brazil treaty regarding withholding taxes?
A. The subsidiaries in Brazil do not pay dividends.
B. The advantage of a treaty would primarily go to the U.S., so Brazil is not interested
in a treaty.
C. The advantage of a treaty would primarily go to Brazil, so the U.S. is not interested
in a treaty.
D. United States has a policy against making tax treaties with countries in South
America.
Answer:
Which of the following methods for translating foreign currency financial statements is
required under IAS 21?
A. Current rate method.
B. Temporal method.
C. Current rate method or temporal method, depending on the functional currency of
the subsidiary.
D. Current rate method or temporal method must be chosen by management of the
parent.
Answer:
What term is used to describe accounting standards that encourage risk-taking in
financial reporting?
A. Optimism
B. Conservatism
C. Professionalism
D. Transparency
Answer:
Investing in several corporate stocks that have different characteristics is referred to as:
A. diversification.
B. portfolio consolidation.
C. asset translation.
D. income determination.
Answer:
What caused the U.S. Congress, the OECD, the International Federation of
Accountants, and other organizations to enact stricter rules on corporate governance in
recent years?
A. Sudden increase in world trade
B. High-profile corporate scandals
C. Significant decline in world trade
D. Expansion of the European Union membership
Answer:
As defined by IAS 38, how are intangible assets unlike other assets?
A. They must have arisen from past events.
B. Their value cannot be reasonably measured.
C. They must be controlled by enterprises.
D. They are nonmonetary and lack physical substance.
Answer:
What is a tax holiday?
A. A trip made to tax havens to buy goods free of sales tax.
B. The time between the date of filing the corporate income tax return and the date
when taxes are due to be paid.
C. This is a period of time when corporations are relieved of paying various taxes.
D. This is the deadline for filing federal tax returns.
Answer:
Which of the following is NOT one of Hofstede’s structural elements of culture that
affect organizational behavior?
A. Individualism vs. collectivism
B. high-profile corporate scandals
C. Strong vs. weak uncertainty avoidance
D. Large vs. small power distance
Answer:
Which body has the primary responsibility for establishing accounting standards in
Japan?
A. Japanese Institute of Certified Public Accountants (JICPA)
B. Japanese Accounting Association (JAA)
C. Japan’s Ministry of Finance (MoF)
D. International Accounting Standards Board (IASB)
Answer:
Novo Limited uses the same management control system in all of its 100 facilities
throughout the world on the assumption that the culture at the home office is applicable
to all other locations. What principle underlies Novo’s control system?
A. Polycentrism
B. Ethnocentrism
C. Geocentrism
D. Egocentrism
Answer:
Which of the following is a limitation of using the temporal method for translating
foreign currency financial statements?
A. The translated asset and liability amounts have no meaningful interpretation.
B. The translation adjustment will usually have a negative impact on income.
C. Financial ratios after translation will be distorted.
D. All of the above are limitations of the temporal method.
Answer:
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?
A. The EU is getting too large to manage effectively.
B. The members added in 2004 have very different political and economic traditions
than the 15 members that joined before 2004.
C. The members added in 2004 have more economic power than the members that
joined the EU between 1957 and 1995.
D. The purchasing power of the EU was weakened by the addition of additional
members.
Answer:
What is the intent of using EBITDA for analyzing foreign financial statements?
A. Adding back interest, taxes, depreciation, and amortization to net income takes out
elements of earnings that are greatly affected by accounting diversity.
B. It makes foreign GAAP conform to local GAAP.
C. EBITDA brings foreign net income in line with net income under U.S. GAAP.
D. All of the above
Answer:
A Danish subsidiary of a U.S. corporation recorded a building it purchased in 2010 for
100,000,000 krone, when the exchange rate was $0.132/krone. The current exchange
rate is $0.163/krone. Under the temporal method, how should the translated amount of
the restated asset be interpreted?
A. The U.S. parent would have to pay $16,300,000 to acquire the building today.
B. The U.S. parent would have had to pay $13,200,000 to acquire the building in 2010.
C. The building is worth $13,200,000 to the U.S. parent today.
D. None of the above
Answer: