Question 1

Which of the following is potentially a problem associated with historical cost-based financial statements in periods of inflation?

Accepted Answer

A) asset understatement 
B) overpayment of income taxes 
C) overstated income 
D) All of the above are potential problems. 
A) asset understatement 
B) overpayment of income taxes 
C) overstated income 
D) All of the above are potential problems. D

Question 2

What does it mean to say that the inflation rate last year was 5%?

Accepted Answer

A) All prices are 5% more at the end of the year than they were at the beginning of the year. 
B) The price of specific products increased 5% between the beginning and the end of the year. 
C) On average,a typical basket of goods costs 5% more at the end of the year than it did at the beginning of the year. 
D) The general purchasing power of the dollar has increased 5% between the beginning of the year and the end of the year. 
A) All prices are 5% more at the end of the year than they were at the beginning of the year. 
B) The price of specific products increased 5% between the beginning and the end of the year. 
C) On average,a typical basket of goods costs 5% more at the end of the year than it did at the beginning of the year. 
D) The general purchasing power of the dollar has increased 5% between the beginning of the year and the end of the year. C

Question 3

What issue of reporting effects of changing prices is addressed by IAS 29,issued by the International Accounting Standards Board in 1989?

Accepted Answer

A) choice between current replacement cost and general purchasing power method 
B) making inflation-adjusted reporting optional or required 
C) specifying the European Central Bank as the official source of inflation rates in the European Union 
D) mandating inflation adjustment for primary financial statements of companies in hyperinflationary economies 
A) choice between current replacement cost and general purchasing power method 
B) making inflation-adjusted reporting optional or required 
C) specifying the European Central Bank as the official source of inflation rates in the European Union 
D) mandating inflation adjustment for primary financial statements of companies in hyperinflationary economies D

Question 4

Holding monetary liabilities during a period of inflation results in:

Accepted Answer

A) purchasing power gains. 
B) purchasing power losses. 
C) transaction gains. 
D) translation losses. 
A) purchasing power gains. 
B) purchasing power losses. 
C) transaction gains. 
D) translation losses.

Question 5

How do multinational corporations combine operations?

Accepted Answer

A) The acquired firm is dissolved and is merged into the acquiring company. 
B) One company acquires a majority of shares of another company,but both entities continue to exist. 
C) Two or more entities dissolve their legal status and merge to create a new corporation. 
D) All of the above. 
A) The acquired firm is dissolved and is merged into the acquiring company. 
B) One company acquires a majority of shares of another company,but both entities continue to exist. 
C) Two or more entities dissolve their legal status and merge to create a new corporation. 
D) All of the above.

Question 6

Under general purchasing power accounting,how is the gain or loss in purchasing power reported?

Accepted Answer

A) as a prior period adjustment to Retained Earnings 
B) as an element of accumulated comprehensive income on the Balance Sheet 
C) as an element of income in the current year 
D) All of the above methods are acceptable under general purchasing power accounting. 
A) as a prior period adjustment to Retained Earnings 
B) as an element of accumulated comprehensive income on the Balance Sheet 
C) as an element of income in the current year 
D) All of the above methods are acceptable under general purchasing power accounting.

Question 7

Holding monetary assets during a period of inflation results in:

Accepted Answer

A) purchasing power gains. 
B) purchasing power losses. 
C) transaction gains. 
D) translation losses. 
A) purchasing power gains. 
B) purchasing power losses. 
C) transaction gains. 
D) translation losses.

Question 8

Mega Corporation acquired 65% of the voting shares of Forko Ltd and consolidated its accounts by restating assets and liabilities of the subsidiary at fair value on the date the shares were acquired. What method of accounting for the business combination is Mega Corporation using?

Accepted Answer

A) Purchase method 
B) Fair value method 
C) Pooling method 
D) Current replacement cost method 
A) Purchase method 
B) Fair value method 
C) Pooling method 
D) Current replacement cost method

Question 9

How does U.S.GAAP differ from IFRS with respect to presenting consolidated financial statements?

Accepted Answer

A) U)S.GAAP requires all controlled subsidiaries to be consolidated,whereas IFRS allows for optional consolidated financial statements. 
B) IFRS excludes subsidiaries acquired for disposal within one year from the consolidation requirement,whereas U.S.GAAP requires all controlled subsidiaries to be consolidated. 
C) U)S.GAAP allows a company to exclude subsidiaries it is holding for sale from the consolidation process. 
D) IFRS requires the parent company to own 50% of the voting shares of the subsidiary before consolidation is allowed. 
A) U)S.GAAP requires all controlled subsidiaries to be consolidated,whereas IFRS allows for optional consolidated financial statements. 
B) IFRS excludes subsidiaries acquired for disposal within one year from the consolidation requirement,whereas U.S.GAAP requires all controlled subsidiaries to be consolidated. 
C) U)S.GAAP allows a company to exclude subsidiaries it is holding for sale from the consolidation process. 
D) IFRS requires the parent company to own 50% of the voting shares of the subsidiary before consolidation is allowed.

Question 10

According to IFRS 3,how should companies account for negative goodwill arising from business combinations?

Accepted Answer

A) It should be capitalized and amortized over a period of no more than 40 years. 
B) It should be treated as a loss on the consolidated income statement. 
C) It should be treated as a gain on the consolidated income statement. 
D) There is no rule for negative goodwill,because there is no such thing. 
A) It should be capitalized and amortized over a period of no more than 40 years. 
B) It should be treated as a loss on the consolidated income statement. 
C) It should be treated as a gain on the consolidated income statement. 
D) There is no rule for negative goodwill,because there is no such thing.

Question 11

Which method of accounting for inflation must be used under U.S.GAAP?

Accepted Answer

A) Current Replacement Cost method 
B) General Purchasing Power method 
C) Both Current Replacement Cost and General Purchasing Power methods must be used 
D) Neither method must be used since inflation accounting is not required under U.S.GAAP. 
A) Current Replacement Cost method 
B) General Purchasing Power method 
C) Both Current Replacement Cost and General Purchasing Power methods must be used 
D) Neither method must be used since inflation accounting is not required under U.S.GAAP.

Question 12

How are IASB requirements to account for joint ventures different from U.S.GAAP?

Accepted Answer

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 allow for 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. 
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 allow for 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.

Question 13

In January 2003,the FASB released Interpretation 46,"Consolidation of Variable Interest Entities," which:

Accepted Answer

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. 
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.

Question 14

Which method most closely represents the requirement of IAS 29 for reporting financial statements of companies in hyperinflationary economies?

Accepted Answer

A) current replacement cost 
B) general purchasing power 
C) historical cost for non-monetary assets and current replacement cost for monetary assets 
D) Companies have a choice between current replacement cost and general purchasing power methods. 
A) current replacement cost 
B) general purchasing power 
C) historical cost for non-monetary assets and current replacement cost for monetary assets 
D) Companies have a choice between current replacement cost and general purchasing power methods.

Question 15

Under IFRS 8,which of the following criteria is NOT considered by all segments that are considered reportable business segments?

Accepted Answer

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. 
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.

Question 16

How is negative goodwill accounted for under U.S.GAAP?

Accepted Answer

A) There is no rule for negative goodwill,because there is no such thing. 
B) It should be capitalized and amortized over a period of no more than 40 years. 
C) It should be treated as an extraordinary loss on the consolidated income statement. 
D) It should be treated as an extraordinary gain on the consolidated income statement. 
A) There is no rule for negative goodwill,because there is no such thing. 
B) It should be capitalized and amortized over a period of no more than 40 years. 
C) It should be treated as an extraordinary loss on the consolidated income statement. 
D) It should be treated as an extraordinary gain on the consolidated income statement.

Question 17

Which of the following is NOT a characteristic which is indicative of hyperinflation under IAS 29?

Accepted Answer

A) The cumulative inflation rate over a three-year period is 75% or higher. 
B) Interest rates are linked to a price index. 
C) The price of credit sales includes a "buffer" to compensate for the expected loss in purchasing power over the credit period. 
D) The general population thinks about prices in terms of a stable foreign currency,and prices may actually be quoted in that currency. 
A) The cumulative inflation rate over a three-year period is 75% or higher. 
B) Interest rates are linked to a price index. 
C) The price of credit sales includes a "buffer" to compensate for the expected loss in purchasing power over the credit period. 
D) The general population thinks about prices in terms of a stable foreign currency,and prices may actually be quoted in that currency.

Question 18

What is a term often used to describe the equity method of accounting?

Accepted Answer

A) the 20% rule 
B) one-line consolidation 
C) significant influence 
D) disaggregated consolidation 
A) the 20% rule 
B) one-line consolidation 
C) significant influence 
D) disaggregated consolidation

Question 19

Under both IFRS and U.S.GAAP,how should an investing entity report nonconsolidated subsidiaries?

Accepted Answer

A) equity method 
B) fair value 
C) proportionate consolidation 
D) parent concept 
A) equity method 
B) fair value 
C) proportionate consolidation 
D) parent concept

Question 20

What term does IAS 31 use for "a contractual arrangement whereby two or more parties undertake an activity which is subject to joint control?"

Accepted Answer

A) merger 
B) consolidation 
C) joint venture 
D) business combination 
A) merger 
B) consolidation 
C) joint venture 
D) business combination

Which of the following is potentially a problem associated with historical cost-based financial statements in periods of inflation?

What does it mean to say that the inflation rate last year was 5%?

What issue of reporting effects of changing prices is addressed by IAS 29,issued by the International Accounting Standards Board in 1989?

Holding monetary liabilities during a period of inflation results in:

How do multinational corporations combine operations?

Under general purchasing power accounting,how is the gain or loss in purchasing power reported?

Holding monetary assets during a period of inflation results in:

Mega Corporation acquired 65% of the voting shares of Forko Ltd and consolidated its accounts by restating assets and liabilities of the subsidiary at fair value on the date the shares were acquired. What method of accounting for the business combination is Mega Corporation using?

How does U.S.GAAP differ from IFRS with respect to presenting consolidated financial statements?

According to IFRS 3,how should companies account for negative goodwill arising from business combinations?

Which method of accounting for inflation must be used under U.S.GAAP?

How are IASB requirements to account for joint ventures different from U.S.GAAP?

In January 2003,the FASB released Interpretation 46,"Consolidation of Variable Interest Entities," which:

Which method most closely represents the requirement of IAS 29 for reporting financial statements of companies in hyperinflationary economies?

Under IFRS 8,which of the following criteria is NOT considered by all segments that are considered reportable business segments?

How is negative goodwill accounted for under U.S.GAAP?

Which of the following is NOT a characteristic which is indicative of hyperinflation under IAS 29?

What is a term often used to describe the equity method of accounting?

Under both IFRS and U.S.GAAP,how should an investing entity report nonconsolidated subsidiaries?

What term does IAS 31 use for "a contractual arrangement whereby two or more parties undertake an activity which is subject to joint control?"

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Comparative Accounting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Analysis of Foreign Financial Statements

International Taxation

International Transfer Pricing

Strategic Accounting Issues in Multinational Corporations

Comparative International Auditing and Corporate Governance

International Corporate Social Reporting

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Exam 9: Additional Financial Reporting Issues

Which of the following is potentially a problem associated with historical cost-based financial statements in periods of inflation?

What does it mean to say that the inflation rate last year was 5%?

What issue of reporting effects of changing prices is addressed by IAS 29,issued by the International Accounting Standards Board in 1989?

Holding monetary liabilities during a period of inflation results in:

How do multinational corporations combine operations?

Under general purchasing power accounting,how is the gain or loss in purchasing power reported?

Holding monetary assets during a period of inflation results in:

Mega Corporation acquired 65% of the voting shares of Forko Ltd and consolidated its accounts by restating assets and liabilities of the subsidiary at fair value on the date the shares were acquired. What method of accounting for the business combination is Mega Corporation using?

How does U.S.GAAP differ from IFRS with respect to presenting consolidated financial statements?

According to IFRS 3,how should companies account for negative goodwill arising from business combinations?

Which method of accounting for inflation must be used under U.S.GAAP?

How are IASB requirements to account for joint ventures different from U.S.GAAP?

In January 2003,the FASB released Interpretation 46,"Consolidation of Variable Interest Entities," which:

Which method most closely represents the requirement of IAS 29 for reporting financial statements of companies in hyperinflationary economies?

Under IFRS 8,which of the following criteria is NOT considered by all segments that are considered reportable business segments?

How is negative goodwill accounted for under U.S.GAAP?

Which of the following is NOT a characteristic which is indicative of hyperinflation under IAS 29?

What is a term often used to describe the equity method of accounting?

Under both IFRS and U.S.GAAP,how should an investing entity report nonconsolidated subsidiaries?

What term does IAS 31 use for "a contractual arrangement whereby two or more parties undertake an activity which is subject to joint control?"

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Comparative Accounting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Analysis of Foreign Financial Statements

International Taxation

International Transfer Pricing

Strategic Accounting Issues in Multinational Corporations

Comparative International Auditing and Corporate Governance

International Corporate Social Reporting

Filters