Deck 9: The International Accounting Environment

Question 1

If a U.S.Company purchases inventory on account for $32,000 euros from a British Company when the exchange rate is $1 to $1.28 euros, how would the British Company recognize the sales revenue and the accounts receivable?

A)​sales revenue of $32,000 and accounts receivable of $32,000
B)​sales revenue of $25,000 and accounts receivable of $25,000
C)​sales revenue of $32,000 and accounts receivable of $25,000 with a $7,000 foreign currency translation loss
D)​sales revenue of $25,000 and accounts receivable of $32,000 with a $7,000 foreign currency translation gain

Answer 1

A

Question 2

Explain the factors which have led to the differences in accounting standards among nations.

Answer 2

1. Social and cultural values
2. Political and legal systems
3. Business activities and economic conditions
4. Standard-setting processes
5. Forms of ownership and capital markets
6. Cooperative efforts between nations

Question 3

Describe the complexities stemming from U.S.-based companies operating in an international environment.

Answer 3

1. Risk associated with settling accounts in currency other than U. S. dollars.
2. Translation to financial statements prepared in a foreign currency.
3. Differences in national accounting standards.
4. Social, language, legal, taxation and cultural differences.

Question 4

A U.S.company purchases medical lab equipment from a Japanese company.The Japanese company requires payment in Japanese yen.In this transaction, the yen would be referred to as the ___________ currency.

A)​measurement
B)​denominated
C)​purchasing
D)​selling

Question 5

The process of expressing a subsidiary's financial statement amounts denominated in a foreign currency into amounts measured in the reporting currency of its parent company is referred to as:

A)​redenomination of financial statements.
B)​foreign currency translation.
C)​currency consolidation.
D)​foreign currency transaction.

Question 6

A U.S.company purchases medical lab equipment from a Japanese company.The Japanese company requires payment in Japanese yen.In this transaction, the dollar would be referred to as the ___________ currency.

A)​measurement
B)​denominated
C)​purchasing
D)​selling

Question 7

One of the challenges facing U.S.companies adopting IFRS is:

A)​the costs incurred to do so.
B)​the subjectivity introduced into financial reporting.
C)​certain areas exist where convergence may not be achieved.
D)​All of the above.

Question 8

Translation of a foreign entity's financial statements into the reporting currency of a domestic entity is typically done

A)​to determine if the foreign entity is properly applying IFRS.
B)​because the domestic entity has economic losses due to transactions denominated in the foreign entity's currency.
C)​to enable a parent company to include its foreign subsidiary's financial statements in its consolidation.
D)​to determine if the foreign entity is more profitable than the domestic entity.

Question 9

Explain the goal of harmonization of accounting standards.Why is this so important to multinational companies?

Question 10

If a U.S.Company purchases inventory on account for $32,000 euros from a British Company when the exchange rate is $1 to $1.28 euros, how would the U.S.Company recognize the inventory and the accounts payable?

A)​inventory of $32,000 and accounts payable of $32,000
B)​inventory of $25,000 and accounts payable of $32,000 with a $7,000 foreign currency loss
C)​inventory of $25,000 and accounts payable of $25,000
D)​inventory of $32,000 and accounts payable of $25,000 with a $7,000 foreign currency gain

Question 11

Which of the following is true regarding the Securities and Exchange Commission requirements from foreign companies seeking to sell securities on U.S.stock markets?

A)​The companies must reconcile their financial statements to U.S.GAAP.
B)​The companies must reconcile their financial statements to U.S.tax regulations.
C)​The companies must provide financial statements prepared according to U.S.GAAP.
D)​The companies may file financial statements prepared in accordance with IFRS without reconciliations to U.S.GAAP.

Question 12

RWB Corporation, a U.S.based company, bought inventory from a German company on June 5 for 12,000 euros, when $1 was equal to 1.20 euros.The company settled its payable with 12,000 euros on August 4 when $1 was equal to 1.25 euros.RWB's measurement currency is the U.S.dollar.RWB Corporation:

A)​should record the inventory for $9,600.
B)​is exposed to an economic loss on the transaction.
C)​has an economic gain on the transaction.
D)​should record the inventory for 12,000 euros.

Question 13

RWB Corporation, a U.S.based company, sold inventory to a German company on June 5 for 12,000 euros, when $1 was equal to 1.20 euros.The company received 12,000 euros in payment on August 4 when $1 was equal to 1.25 euros.RWB's measurement currency is the U.S.dollar.RWB Corporation:

A)​should record the sale for $9,600.
B)​is exposed to an economic loss on the transaction.
C)​has an economic gain on the transaction.
D)​should record the sale for 12,000 euros.

Question 14

Forward Contracts:
Calculate the gain or loss to the holder and to the writer of the forward contract who agrees to buy foreign currencies
at a specific price.Assume that on May 1, the writer of the forward contract agrees to sell 3,000,000 foreign currencies at a specific price of $0.22 per foreign currency (FC) with delivery in 30 days (May 31).Assume the spot rate at the end of the forward period is $0.20.
What is the entry to the holder on May 1.
Explain how the value of the forward contract changes over time.

Question 15

Describe the concept of convergence as it pertains to the FASB and IASB and describe the ways in which this may be accomplished.

Question 16

Which of the following factors has not influenced the development of accounting practices in various nations?

A)​the political environment
B)​economic development
C)​cultural background
D)​all of these factors have influenced the development of accounting practices

Question 17

Which of the following is not a responsibility of the International Accounting Standards Board (IASB)?

A)​To advise political bodies to enact legislation regulating international business.
B)​To establish a single set of international financial reporting standards.
C)​To achieve convergence of national accounting standards and IFRS.
D)​All are objectives of the IASB.