1) For companies having monetary assets denominated in foreign currency units, these
assets are converted into dollars at the historical rate of exchange that was in effect at
the time of the foreign currency inflow.
2) An increase in cash flows from operating activities occurs when inventory is
intentionally understated.
3) When trading securities are sold, the amount of the realized gain or loss is the selling
price of the securities relative to the most recent fair value reflected in the financial
statements.
4) Under the percentage-of-completion method, the amount debited to “construction
expense” each period is the actual construction costs incurred in that period.
5) An overstatement of ending inventory leads to an overstatement of cost of goods
sold.
6) Credit risk is unaffected by aggressive application of accounting standards as cash
flows are unaffected by financial reporting choices.
7) If a firm has a complex capital structure, GAAP requires that both basic and fully
diluted earnings per share must be reported.
8) The annual expense associated with a capital lease decreases over the term of the
lease.
9) IFRS requires that research be expensed but does permit capitalization of some
development expenditures.
10) While both IFRS and GAAP require companies to consolidate entities they control,
IFRS defines control more narrowly than GAAP.
11) Management might, in a “down” earnings year, be tempted to treat nonrecurring
gains as part of income from continuing operations and nonrecurring losses as
extraordinary.