Johnson Ltd. determined that the net present value of an investment in technological
improvements at its plant in France would be €10,000,000 if pending litigation was
resolved in the company’s favor and would be €2,000,000 if the courts ruled against the
company. Johnson’s attorneys in France assessed the probability of a favorable ruling at
70%. What is the expected net present value of the project?
A. €10,000,000
B. €2,000,000
C. €6,000,000
D. €7,600,000
Answer:
Under IFRS 8, which of the following criteria is NOT considered by all segments that
are considered reportable business segments?
A. The segment must have revenue that is one-tenth or more of combined revenue.
B. The segment must have profit that is 10% or more of combined profit of all
segments with profit.
C. The segment must have revenue that is more than half from external sources.
D. The segment must have assets that are 10% or more of combined segment assets.
Answer:
Which method of translating foreign currency financial statements must be used
according to FASB ASC 830, Foreign Currency Matters?
A. Temporal method for all subsidiaries
B. Current rate method for all subsidiaries
C. U.S. parent companies may choose between the temporal method and the current
rate method
D. Temporal method for subsidiaries that are closely controlled by the parent and
current rate method for subsidiaries which are not
Answer:
Which of the following is true of a conceptual approach to auditor independence?
A. Its applicability goes beyond any specific situation and mandates a proactive
approach based on clearly articulated principles.
B. It prohibits certain nonaudit services such as bookkeeping, valuations, actuarial, and
internal audit outsourcing.
C. It requires audit committee prior approval for any service provided by the auditors.
D. It prevents the use of legalistic devices to avoid compliance.
Answer:
What term is used to refer to the decision about whether to report an item in the
financial statements?
A. Capitalization
B. Recognition
C. Realization
D. Conservatism
Answer:
Which of the following factors should be evaluated during the internal analysis phase of
strategic formulation?
A. Manufacturing capacity
B. New government regulations pending
C. Customer demand
D. Strength of the competition
Answer:
In an Ernst & Young 2005 survey of 130 companies’ Forms 20-F filed with the SEC,
what issue required adjustments by the greatest number of companies?
A. Goodwill
B. Leases
C. Pensions
D. Wages
Answer:
What is meant by the term “thin capitalization?”
A. Undervaluing foreign investments
B. Using as little debt financing as a country will allow
C. Minimizing the amount of equity capital used to fund foreign operations
D. Creating transparency in the methods used to fund foreign operations
Answer:
Which of the following statements is NOT a way in which a country might adopt
IFRS?
A. By requiring all companies in that country to adopt IFRS.
B. By permitting foreign companies listed on domestic exchanges to adopt IFRS.
C. By force of IASB to adopt of IFRS.
D. By requiring domestic companies that list on foreign exchanges to adopt IFRS.
Answer:
What is the meaning of “tax system neutrality?”
A. Taxes should be minimized.
B. Tax systems should not be a major factor in business decisions.
C. Tax policies should be unbiased.
D. Taxes in one jurisdiction are offset by tax credits in another jurisdiction.
Answer:
Which of the following statements is true of IAS 19?
A. It establishes guidance for measuring onerous contract.
B. It requires all past service costs to be recognized in net income in a subsequent
period in which the benefit plan is changed.
C. Its revised version became effective in the year 2013.
D. It covers all employee benefits including share-based compensation.
Answer:
Which of the following is NOT among the four methods which have been used to
translate foreign currency financial statements globally?
A. The historic/non-historic method
B. The monetary/nonmonetary method
C. The temporal method
D. The current/noncurrent method
Answer:
While there are many advantages of decentralization, what is the major disadvantage of
decentralized organizations?
A. Manageability of multiple divisions in both domestic and international operations
B. Possible conflict between division managers’ decisions and goals of the organization
C. Making timely operating decisions
D. All of the above
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. What is
advantage of this decision?
A. Net income for Subsidiary X will increase by $30 per unit.
B. Net income for the corporation as a whole will increase by $30 per unit.
C. Net income for the corporation as a whole will increase by $3 per unit.
D. Net income for Subsidiary Y will decrease by $30 per unit.
Answer:
Under IFRS 3, which concept must be used to report the assets and liabilities of an
acquired company on the parent company financial statements?
A. Parent company concept
B. Equity concept
C. Entity concept
D. Historical cost concept
Answer:
What is the official language of the IASB?
A. English
B. French
C. Spanish
D. German
Answer:
A cultural preference for a loosely knit social fabric rather than a tightly knit social
fabric is referred to as:
A. uncertainty avoidance.
B. masculinity.
C. individualism.
D. power distance.
Answer:
Of the 16 members of the International Accounting Standards Board (IASB), how many
work for the board on a full-time basis?
A. 8
B. 13
C. 10
D. 0
Answer:
High inflationary economies, when considering compounding, have an approximate
annual inflation rate of:
A. 25% for four years in a row.
B. 100% for three years in a row.
C. 26% for three years in a row.
D. 50% for two years in a row.
Answer:
How are IASB requirements to account for joint ventures different from U.S. GAAP?
A. International standards require the equity method, but U.S. GAAP allows for
flexibility in accounting for joint ventures.
B. U.S. GAAP requires the equity method, whereas the international standards require
proportionate consolidation.
C. IASB standards and U.S. GAAP are essentially the same for accounting for joint
ventures.
D. IASB standards do not specify which methods are allowed to account for joint
ventures, whereas U.S. GAAP requires proportional consolidation.
Answer:
When a patent or trademark is acquired in a business combination, what does IAS 38
say about recording these intangibles?
A. If they had not been previously recorded as separate assets by the acquired
company, they should always be recorded as “Goodwill” on the balance sheet of the
company acquiring them.
B. The cost of the intangibles should be expensed by the acquiring company on the
merger date.
C. They should be recorded as separate intangible assets only if their useful life is
indefinite.
D. They should be recorded as separate intangible assets if their fair value can be
reliably measured.
Answer:
According to the research of Christopher Nobes, what is the primary determinant of the
accounting systems in developing countries?
A. The nature of their financing system
B. The accounting system of countries that dominate their culture
C. The size of their capital market
D. The strength of their tax code
Answer:
Which of the following is a non-financial measure of performance?
A. Return on investment
B. Market share
C. Earnings per share
D. Return on equity
Answer:
What is the primary role of the Financial Reporting Council in the United Kingdom?
A. Compliance oversight
B. Setting standards for accounting practice
C. Policy over the accounting standard-setting process
D. All of the above
Answer:
Which capital budgeting technique is preferred in all major industrialized countries?
A. Net present value
B. Internal rate of return
C. Payback period
D. There is no particular preferred capital budgeting technique across countries
Answer:
Canto Ltd, a Spanish corporation, acquired 100% interest in Bevo, Inc., a U.S.
corporation for $50,000,000. The net assets of Bevo had a book value of $35,000,000
and a fair value of $46,000,000. How should Canto record the business combination?
A. Entry A
B. Entry B
C. Entry C
D. Entry D
Answer:
Which of the following statements is true of the International Accounting Standards
Board (IASB)?
A. The Board consists of 16 members.
B. The Board should contain 6 part-time members.
C. At least 13 members of the Board must have experience as auditors.
D. All members of the Board should be from a single country.
Answer:
What is the role of the liaison members of the International Accounting Standards
Board?
A. To facilitate information exchange and cooperation between the FASB and the
IASB
B. To eliminate the political influences on the IASB and national accounting bodies
C. To enforce adherence to the fundamental principles of the IASB
D. All of the above
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 tax will be owed to the U.S. government on the Japanese branch income?
A. $4,200,000
B. $3,500,000
C. $0
D. $7,000,000
Answer:
When two parties from different countries enter into a transaction:
A. the currency to be used for settling the transaction is set by the government.
B. a third country’s currency must be used to denominate the transaction.
C. the two parties are free to decide the currency that should be used to settle the
transaction.
D. the domestic currency of the buyer must be used to settle the transaction.
Answer:
While conducting trend analysis, financial statement amounts should be translated
using:
A. current exchange rate to avoid translation adjustment.
B. historical exchange rate to ensure compliance with IFRS.
C. average exchange rate avoid translation adjustment.
D. current rate at the end of each year.
Answer: