Question 1

Nonconsolidation can be highly misleading as to overall financial performance with complex foreign operations.

Accepted Answer

A) True 
 B)False

Question 2

The advantage of setting up brands as an asset without amortization is that

Accepted Answer

A)  brand names have value and are being maintained through advertising. 
B)  it is relatively easy to assess the future value of well-known brands. 
C)  it is consistent with accrual accounting. 
D)  it is the most conservative approach to accounting for brands.

Question 3

Because of international accounting standards, R&D is always expensed.

Accepted Answer

A) True 
 B)False

Question 4

What is the problem of writing off goodwill in service companies

Accepted Answer

A)  leverage will become low 
B)  the price earnings ratio will not change 
C)  the stated financial position will not change 
D)  equity maybe become depleted

Question 5

The current practice in all countries is to amortize goodwill.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following accurately reflects the accounting for non-consolidated subsidiaries in Japan?

Accepted Answer

A)  Cross-holdings of related companies make it difficult to identify a parent company. 
B)  Japanese companies are not permitted to use the equity method. 
C)  Keiretsu relationships usually have a bank as the major shareholder in related companies. 
D)  Earnings and assets of Japanese companies tend to be overstated due to the inclusion of group members in consolidated financial statements.

Question 7

Current international accounting standards permits the amortization of goodwill.

Accepted Answer

A) True 
 B)False

Question 8

Capitalization of brands without amortization

Accepted Answer

A)  is acceptable in Canada and the United States 
B)  is acceptable in France if there is no limit to its useful life 
C)  is only permissible when the brand is internally generated under the IASB 
D)  The IASB has no standard relating to brands.

Question 9

Multinational enterprises differ from strictly domestic enterprises in what way from an accountability and disclosure perspective?

Accepted Answer

A)  MNEs typically don't pay taxes. 
B)  MNEs usually are in conflict with the objectives of host countries, whereas domestic firms tend to be compatible with home country objectives. 
C)  strictly domestic companies do not operate on an arms-length basis with customers abroad. 
D)  with MNEs, there is usually a significant volume of intercompany transactions in foreign operations.

Question 10

The countries with immediate write-off of goodwill take the advantage that future earnings will be higher.

Accepted Answer

A) True 
 B)False

Question 11

A contractual arrangement whereby two or more parties undertake an activity which is subject to joint control

Accepted Answer

A)  a consol 
B)  a preferred stock 
C)  a joint venture 
D)  a mutual fund

Question 12

The revaluation of the assets acquired to fair value or updated purchase price

Accepted Answer

A)  is usually base on current values. 
B)  is required by Swiss and Japanese companies. 
C)  is not allowed in the United Kingdom or United States. 
D)  has no future affect on earnings.

Question 13

Using the same assumptions as given in question 44, but assume that DLT is Swedish. What would be the amount of goodwill recognized on an annual basis under their GAAP?

Accepted Answer

A)  $8 million per year 
B)  $7.5 million per year 
C)  $4 million per year 
D)  Goodwill cannot be systematically amortized.

Question 14

An alternative to line-by-line consolidation is

Accepted Answer

A)  proportional consolidation 
B)  minority interest accounting 
C)  joint-venture accounting 
D)  the cost method

Question 15

The IASC recommends a "Benchmark Treatment" of

Accepted Answer

A)  accrual accounting 
B)  fair value accounting 
C)  full translation 
D)  proportionate consolidation

Question 16

According to the efficient market hypothesis as it relates to goodwill,

Accepted Answer

A)  share prices do not accurately reflect all publicly available information. 
B)  accounting treatment of intangibles is not as important as the disclosure of information on how they are accounted for. 
C)  goodwill should be set up as an asset and amortized. 
D)  goodwill should be written off to reserves.

Question 17

Proportional consolidation involves

Accepted Answer

A)  including a proportion of the firm's income and equity. 
B)  using the cost but not the equity method. 
C)  consolidating the ownership share of assets and liabilities on a pro-rata basis. 
D)  having a proportion of companies in a country (usually the internationally-traded companies) consolidate their financial statements.

Question 18

According to the 7th Directive of the EU,

Accepted Answer

A)  worldwide consolidation is required. 
B)  companies must consolidate domestic subsidiaries, but foreign subsidiaries are optional. 
C)  the more conservative cost method must be used to account for subsidiaries for which the parent owns less than a majority interest. 
D)  assets must be revalued to book values in the case of an acquisition.

Question 19

Acquisition accounting in the United States and United Kingdom generally requires assets to be adjusted to fair value or purchase price.

Accepted Answer

A) True 
 B)False

Question 20

The dominant approach to accounting for goodwill in the United States is the

Accepted Answer

A)  immediate write-off to reserves. 
B)  immediate write-off to income. 
C)  set up as an asset subject to amortization. 
D)  set up as an asset not subject to amortization.

Exam 8: International Business Combinations, Goodwill and Intangibles

Nonconsolidation can be highly misleading as to overall financial performance with complex foreign operations.

The advantage of setting up brands as an asset without amortization is that

Because of international accounting standards, R&D is always expensed.

What is the problem of writing off goodwill in service companies

The current practice in all countries is to amortize goodwill.

Which of the following accurately reflects the accounting for non-consolidated subsidiaries in Japan?

Current international accounting standards permits the amortization of goodwill.

Capitalization of brands without amortization

Multinational enterprises differ from strictly domestic enterprises in what way from an accountability and disclosure perspective?

The countries with immediate write-off of goodwill take the advantage that future earnings will be higher.

A contractual arrangement whereby two or more parties undertake an activity which is subject to joint control

The revaluation of the assets acquired to fair value or updated purchase price

Using the same assumptions as given in question 44, but assume that DLT is Swedish. What would be the amount of goodwill recognized on an annual basis under their GAAP?

An alternative to line-by-line consolidation is

The IASC recommends a "Benchmark Treatment" of

According to the efficient market hypothesis as it relates to goodwill,

Proportional consolidation involves

According to the 7th Directive of the EU,

Acquisition accounting in the United States and United Kingdom generally requires assets to be adjusted to fair value or purchase price.

The dominant approach to accounting for goodwill in the United States is the