Question 1

Which of the following statements is true regarding equity reserves?

Accepted Answer

A)   Under U.S.GAAP,Other Comprehensive Income represents an equity reserve.
B)   Under U.S.GAAP,the allowance for doubtful accounts is considered an equity reserve.
C)   Under U.S.GAAP,appropriations of retained earnings are considered an equity reserve.
D)   Under U.S.GAAP,equity reserves are not currently allowed. D

Question 2

Lunes Company,a U.S.company,owns a 100% interest in its subsidiary,Placido,S.A. ,located in Italy.Placido,S.A. ,began operations on January 1,2014.The subsidiary's operations consist of leasing space in an office building.The building,which cost one million euros,was financed primarily by Italian banks.All revenues and expenses are received and paid in euros.The subsidiary also maintains its accounting records in euros.In light of these facts,management of the U.S.parent has determined that the euro is the functional currency of the subsidiary.
The subsidiary's balance sheet at December 31,2014,and income statement for the year then ended,are presented below,in euros:
   The following are relevant exchange rates for the year 2014:
€1 = $1.50 at the beginning of 2014,at which time the common stock
was issued and the land and building were financed by the mortgage.
€1 = $1.55 weighted average for 2014.
€1 = $1.58 at the date the dividends were declared and paid and
the unearned rent was received.
€1 = $1.62 at the end of 2014.
Required:
Prepare in U.S.dollars a balance sheet at December 31,2014,and an income statement for the year then ended.

Accepted Answer

The answer of Lunes Company,a U.S.company,owns a 100% interest in...

Question 3

Which of the following is the least likely means a company might choose to meet the needs of international investors?

Accepted Answer

A)   Translation of financial statements or annual reports into the language of the user.
B)   Denomination of the financial statements in the currency of the country where the financial statements will be used.
C)   Mutual recognition in which one country accepts the financial statements of another country for regulatory purposes such as listing on stock exchanges or filing annual reports.
D)   Partial or complete restatement of financial statements to the accounting principles of the financial statement users' country. C

Question 4

Under international accounting standards,if a sale-leaseback results in an operating lease then

Accepted Answer

A)   any profit on the original sale is deferred and recognized over the life of the subsequent lease.
B)   any profit on the original sale is not recognized in the financial statements.
C)   any profit on the original sale is deferred and recognized over the life of the leased asset.
D)   assuming the original sale was clearly at fair value,any profit is recognized immediately even when the leaseback results in an operating lease.

Question 5

The foreign currency translation adjustments amount is a(n)

Accepted Answer

A)   account in the parent company's general ledger.
B)   account in the foreign subsidiary's general ledger.
C)   balancing amount for translation.
D)   balancing amount for remeasurement.

Question 6

A translation adjustment resulting from the translation process is disclosed on the financial statements as

Accepted Answer

A)   a separate component of stockholders' equity.
B)   a below-the-line item on the income statement.
C)   an adjustment to retained earnings.
D)   a part of income from operations on the income statement.

Question 7

Under international accounting standards,the standard for accounting for construction contracts

Accepted Answer

A)   allows only the completed-contract method.
B)   expresses a preference for the completed-contract method only in some circumstances.
C)   does not allow the completed-contract method.
D)   does not allow the percentage-of-completion method.

Question 8

According to FASB ASC Topic 830 (Foreign Currency Matters - Translation of Financial Statements),the appropriate method of restatement from a foreign currency to the U.S.dollar for each of the following is Remeasurement Translation

Accepted Answer

A)   Current rate Monetary/nonmonetary
B)   Monetary/nonmonetary Monetary/nonmonetary
C)   Monetary/nonmonetary Current rate
D)   Current rate Current rate

Question 9

The primary purpose of the Security and Exchange Commission's Form 20-F is to

Accepted Answer

A)   explain in detail the differences between the internal controls established under the accounting and auditing principles of a foreign country and those of the United States.
B)   determine the fee a foreign company must pay to register its financial statements with the Securities and Exchange Commission.
C)   explain in detail the differences between net income computed under the accounting principles of a foreign country and U.S.GAAP.
D)   explain in detail the differences between total assets measured using the accounting principles of a foreign country and U.S.GAAP.

Question 10

Florence Enterprises,a subsidiary of Verona Company based in New York,reported the following information at the end of its first year of operations (all in euros): assets--1,320,000;expenses--340,000;liabilities--880,000;capital stock--80,000,revenues--400,000.Relevant exchange rates are as follows:  As a result of the translation process,what amount is recorded on the financial statements as the translation adjustment?

Accepted Answer

A)   $25,200 debit adjustment
B)   $34,800 debit adjustment
C)   $34,800 credit adjustment
D)   $25,200 credit adjustment

Question 11

Under international accounting standards,cash paid for interest (associated with interest expense)can be shown on the statement of cash flows as an

Accepted Answer

A)   operating activity only.
B)   operating activity or a financing activity.
C)   operating activity or an investing activity.
D)   investing or financing activity.

Question 12

Monty Enterprises,a subsidiary of Kerry Company based in Delaware,reported the following information at the end of its first year of operations (all in British pounds): assets--483,000;expenses--360,000;liabilities--105,000;capital stock--90,000,revenues--648,000.Relevant exchange rates are as follows:  As a result of the translation process,what amount is recorded on the financial statements as the translation adjustment?

Accepted Answer

A)   $34,020 debit adjustment
B)   $34,020 credit adjustment
C)   $11,520 debit adjustment
D)   $11,520 credit adjustment

Question 13

Under international accounting standards,the derecognition of receivables requires that

Accepted Answer

A)   the risks and rewards associated with the cash flows from the financial asset pass from the transferor to the transferee.
B)   a binding legal agreement must exist between the transferor and the transferee.
C)   economic ownership of the asset passes from the transferor to the transferee.
D)   the receivable is determined to be fully collectible.

Question 14

Financial information for Pinnacle Enterprises at the end of 2014 is as follows:
  Relevant exchange rates are as follows:
  In addition,the computed retained earnings balance from the prior year's translated financial statements is $2,405,000 at the end of 2014.
Prepare a translated trial balance for Pinnacle Enterprises.

Accepted Answer

The answer of Financial information for Pinnacle Enterprises at the...

Question 15

Under international accounting standards,cash paid for income taxes (associated with income tax expense)can be shown on the statement of cash flows as an

Accepted Answer

A)   operating activity only.
B)   operating activity,or may be split between operating,investing,and financing activities depending on the nature of the transaction giving rise to the tax payment.
C)   operating activity,or may be split between operating and investing activities depending on the transaction giving rise to the tax payment.
D)   operating activity,or may be split between investing and financing activities depending on the transaction giving rise to the payment.

Question 16

Under international accounting standards,the pension-related asset or liability is recognized on the balance sheet as the

Accepted Answer

A)   net amount of the difference between the projected benefit obligation and plan assets and the deferred items (prior service cost,deferred pension gain/loss) .
B)   difference between the projected benefit obligation and plan assets.
C)   difference between the accumulated benefit obligation and plan assets.
D)   difference between the vested benefit obligation and plan assets.

Question 17

Which of the following is not correct regarding the translation of a foreign entity's accounts?

Accepted Answer

A)   Translation uses the historical rate at the date a foreign subsidiary was acquired for the paid-in capital amounts.
B)   Translation uses the current rate method.
C)   Translation should be used in a translating the accounts of a foreign entity operating in a highly inflationary economy.
D)   Foreign currency translation adjustments are displayed under the accumulated comprehensive income section of the translated balance sheet.

Question 18

McGovern Corporation,a U.S.company,owns a 100% interest in its subsidiary,Dukakis Limited. ,located in the United Kingdom.Dukakis began operations on January 1,2013.All revenues and expenses are received and paid in British pounds.The subsidiary maintains its accounting records in British pounds.In light of these facts,management of the U.S.parent has determined that the British pound is the functional currency of the subsidiary.
The subsidiary's balance sheet at December 31,2014,and income statement for the year then ended,are presented below in British pounds:
   The following are relevant exchange rates for the year 2014:
£1 = $1.51 at the beginning of 2013,at which time the common stock
was issued.
£1 = $1.55 weighted average for 2014.
£1 = $1.58 at the date the dividends were declared and paid.
£1 = $1.53 at the end of 2014.
£1 = $1.56 at the beginning of 2014.
The balance of the cumulative translation account at January 1,2014,was $1,157.
Required:
Prepare in U.S.dollars a balance sheet at December 31,2014,and an income statement for the year then ended for Dukakis,Limited.

Accepted Answer

The answer of McGovern Corporation,a U.S.company,owns a 100% interest in...

Question 19

Which of the following is the current group within the International Accounting Standard Board organization that interprets existing standards or provides guidance in areas for which no accounting formal standard exists?

Accepted Answer

A)   Standing Interpretations Committee
B)   International Accounting Standards Committee
C)   Emerging Issues Task Force
D)   International Financial Reporting Interpretations Committee

Question 20

Which of the following is correct regarding the treatment of short-term obligations expected to be refinanced?

Accepted Answer

A)   If an obligation has actually been refinanced or a firm refinancing agreement is in place by the date financial statements are issued,then reclassify the short-term obligation as long-term
B)   Classify the short-term obligation as long-term if the obligation has been refinanced by the date the financial statements are issued
C)   Classify the short-term obligation as long-term if the obligation has been refinanced by the balance sheet date.
D)   There is no provision for reclassifying short-term obligations expected to refinanced as long-term obligations under international accounting standards.

Exam 22: Accounting in a Global Market