Accounting for Multinational Enterprises Exam Review
Course Introduction
Accounting for Multinational Enterprises examines the principles and practices of accounting as they apply to companies operating across national borders. The course explores topics such as foreign currency transactions, translation of financial statements for consolidation purposes, international standards of financial reporting, transfer pricing, tax considerations, and the complexities introduced by differing accounting regulations and economic environments. Students will develop a solid understanding of how multinational enterprises navigate the challenges of regulatory compliance, performance measurement, and financial decision-making in a global context, equipping them with the skills necessary to analyze and interpret the financial information of multinational organizations.
Recommended Textbook
Advanced Accounting International 11th edition by Floyd A. Beams
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Page 2
Chapter 1: Business Combinations
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Q1) With respect to goodwill,an impairment
A)will be amortized over the remaining useful life.
B)is a two-step process which analyzes each business reporting unit of the entity.
C)is a one-step process considering the entire firm.
D)occurs when asset values are adjusted to fair value in a purchase.
Answer: B
Q2) According to FASB Statement 141R,which one of the following items may not be accounted for as an intangible asset apart from goodwill?
A)A production backlog
B)A talented employee workforce
C)Noncontractual customer relationships
D)Employment contracts
Answer: B
Q3) Goodwill arising from a business combination is
A)charged to Retained Earnings after the acquisition is completed.
B)amortized over 40 years or its useful life,whichever is longer.
C)amortized over 40 years or its useful life,whichever is shorter.
D)never amortized.
Answer: D
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Page 3
Chapter 2: Stock Investments Investor Accounting and Reporting
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Q1) Assume that Pansy has significant influence and uses the equity method of accounting for its investment in Sunflower.The balance in the Investment in Sunflower account at December 31,2013 was
A)$78,200.
B)$80,000.
C)$81,800.
D)$83,300.
Answer: C
Q2) Assume that Pansy Incorporated used the cost method of accounting for its investment in Sunflower.The balance in the Investment in Sunflower account at December 31,2013 was
A)$76,700.
B)$80,000.
C)$83,300.
D)$95,000.
Answer: B
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) Panini Corporation owns 85% of the outstanding voting stock of Strathmore Company and Malone Corporation owns the remaining 15% of Strathmore's voting stock.On the consolidated financial statements of Panini Corporation and Strathmore,Malone is
A)an affiliate.
B)a noncontrolling interest.
C)an equity investee.
D)a related party.
Answer: B
Q2) In the preparation of consolidated financial statements,which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers?
A)All revenues,expenses,gains,losses,receivables,and payables
B)All revenues,expenses,gains,and losses but not receivables and payables
C)Receivables and payables but not revenues,expenses,gains,and losses
D)Only sales revenue and cost of goods sold
Answer: A
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Chapter 4: Consolidated Techniques and Procedures
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Q1) When preparing consolidated financial statements,which of the following is a subtraction in the calculation of cash flows from operating activities under the indirect method?
A)The change in the balance sheet of the common stock account
B)Noncontrolling interest dividends paid
C)Noncontrolling interest share
D)Undistributed income of equity investees
Q2) When preparing the consolidation workpaper for a company and its controlled subsidiary,which of the following would be used for the entities being consolidated?
A)Post-closing trial balances
B)Adjusted trial balances
C)Unadjusted trial balances
D)The adjusted trial balance for the parent and the unadjusted trial balance for all controlled subsidiaries
Q3) What is the reported amount for the noncontrolling interest?
A)$80,000
B)$84,400
C)$98,000
D)$122,500
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Page 6
Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) What is Pew's income from Sordid for 2011?
A)$32,000
B)$48,000
C)$60,000
D)$75,000
Q2) Assume there are routine inventory sales between parent companies and subsidiaries.When preparing the consolidated financial statements,which of the following line items is indifferent to the sales being either upstream or downstream?
A)Consolidated retained earnings
B)Consolidated gross profit
C)Noncontrolling interest share
D)Controlling interest share of consolidated net income
Q3) For 2011,consolidated net income will be what amount if the intercompany sale was downstream?
A)$180,000
B)$253,000
C)$256,000
D)$259,000
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7
Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) The 2011 unrealized gain from the intercompany sale
A)should be recognized in consolidation in 2011 by a working paper entry.
B)should be eliminated from consolidated net income by a working paper entry that credits land for $14,000.
C)should be eliminated from consolidated net income by a working paper entry that debits land for $14,000.
D)should be eliminated from consolidated net income by a working paper entry that credits gain on sale of land for $14,000.
Q2) On January 1,2012 Saffron Co.recorded a $40,000 profit on the upstream sale of some equipment that had a remaining four-year life under the straight-line depreciation method.The equipment has no salvage value.Saffron had separate income of $100,000 in 2012.The parent company,Pommel Incorporated,owns 90% of Saffron.Pommel would report investment income from Saffron in 2012 of
A)$54,000.
B)$63,000.
C)$90,000.
D)$126,000.
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Page 8
Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) Peter Corporation owns a 70% interest in Sundown Corporation acquired several years ago at a price equal to book value and fair value.On December 31,2010,Sundown had $300,000 par of 6% bonds outstanding with an unamortized premium of $30,000.The bonds mature in five years and pay interest on January 1 and July 1.On January 2,2011,Peter acquired one-third of Sundown's bonds for $117,000.Peter and Sundown use straight-line amortization.Sundown reports net income of $250,000 for 2011.Peter uses the equity method to account for the investment.
Required:
1.Calculate Peter's income from Sundown for 2011.
2.Calculate the noncontrolling interest share for 2011.
Q2) If the price paid by a parent company to acquire the debt of a subsidiary is greater than the book value of the liability,a ________ occurs.
A)realized loss on the retirement of debt from the viewpoint of the subsidiary
B)realized gain on the retirement of debt from the viewpoint of the subsidiary
C)constructive loss on the retirement of debt from the viewpoint of the consolidated entity
D)constructive gain on the retirement of debt from the viewpoint of the consolidated entity
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) On January 1,2011,assume the fair values of Savannah's identifiable assets and liabilities equal book values.What is the change in the amount of goodwill associated with the issuance of 80,000 additional shares to Goldberg? (Use four decimal places. )
A)Increase goodwill $38,176.
B)Decrease goodwill $38,176.
C)Increase goodwill $384,000.
D)Decrease goodwill $384,000.
Q2) Noncontrolling interest share for 2010 is
A)$21,000.
B)$32,400.
C)$36,000.
D)$50,000.
Q3) If SOS sold the additional shares to the general public,Great's Investment in SOS account after the sale would be ________.(Use four decimal places. )
A)$945,000
B)$1,157,100
C)$1,225,000
D)$1,245,000
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Chapter 9: Indirect and Mutual Holdings
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Q1) Page Corporation acquired a 60% interest in Ace Corporation at a price $40,000 in excess of book value and fair value on January 1,2010.On the same date,Ace acquired a 70% interest in Bader Corporation at a price $30,000 in excess of book value and fair value.The excess purchase cost paid by Page and Ace was attributed to goodwill.Separate net incomes (excluding investment income)for the three affiliates for 2010 are as follows: Page,$500,000,Ace,$300,000,and Bader,$400,000. Page's controlling interest share of consolidated net income for 2010 is
A)$808,000.
B)$848,000.
C)$920,000.
D)$960,000.
Q2) Noncontrolling interest share for Achille is
A)$18,000.
B)$25,200.
C)$36,200.
D)$72,000.
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Chapter 10: Subsidiary Preferred Stock, consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) Peyton Corporation owns an 80% interest in Sampe Corporation's common stock.Throughout 2011,Sampe had 10,000 shares of common stock outstanding and Peyton had 100,000 shares of common stock outstanding.Sampe's only dilutive security consists of $100,000 face amount of 8% bonds payable.Each $1,000 bond is convertible into 20 shares of Sampe stock.Peyton and Sampe's separate net incomes for the year are $200,000 and $150,000,respectively.Assume a 34% flat income tax rate. Required:
Compute the amount of basic and diluted earnings per share for Peyton (consolidated)and Sampe Corporations.
Q2) Assume Salter's net income for 2011 is $220,000.No dividends are declared or paid in 2011.What is the change in Pardy's Investment in Salter for the year ending December 31,2011?
A)$ 84,000
B)$119,000
C)$154,000
D)$189,000
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Page 12
Chapter 11:
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Q1) With regard to a variable interest entity (VIE),Ann Company may meet the following two conditions: Condition I
Ann Company has the power to direct VIE activities that significantly impact VIE's economic performance.
Condition II
Ann Company has an obligation to absorb losses and/or a right to receive significant benefits from the VIE.
Ann Company must consolidate a VIE if
A)Condition I is met only.
B)Condition II is met only.
C)either Condition I or Condition II is met.
D)both Condition I and Condition II are met.
Q2) Under parent company theory,noncontrolling interest is valued at ________ on the consolidated balance sheet.Under entity theory,noncontrolling interest is valued at ________ on the consolidated balance sheet.
A)fair value;present value
B)present value;fair value
C)book value;fair value
D)fair value;book value
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) Crabby Industries,a U.S.corporation,purchased inventory from a company in Sweden on November 18,2011 when the Swedish krona was trading at 1 krona = $0.161.The transaction was for 600,000 krona,and was to be paid in krona in 90 days.Crabby closed their books at December 31 for financial reporting purposes when the krona was trading at $0.167.On February 16,2012,Crabby paid the invoice when the krona was trading at $0.156.
Required:
Show the journal entries recorded by Crabby on November 18,2011,December 31,2011,and February 16,2012.
Q2) If a U.S.company is preparing a journal entry for a recent purchase,foreign-currency-denominated purchases must be measured in ________ at the purchase date using the foreign currency ________ rate on the purchase date.
A)foreign currency;spot
B)foreign currency;future
C)U)S.dollars;forward
D)U)S.dollars;spot
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Page 14
Chapter 13: Accounting for Derivatives and Hedging
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Q1) On June 1,2011,Dapple Industries purchases an option contract for $5,000 on 10,000 gallons of aviation gas to minimize its purchasing cost price exposure.At the time,the market price is $2.50 per gallon and the option price of $2 per gallon will expire 6 months later.Dapple can exercise the option at its discretion.When Dapple prepares quarterly reports on June 30,Dapple is still holding the option.On June 30,the market price of aviation gas is $4.50 per gallon.The option is to be settled net. On August 1,Dapple exercises the option when the gas market price is $5.00 per gallon and purchases 40,000 gallons of gas.On August 15,Dapple uses all of the gas on a charter flight.
Required:
What are Dapple's journal entries with regard to the aviation gas option? Assume this is a cash flow hedge.Ignore the time value of money.
Q2) Which of the following is not an approach appropriate for hedge accounting?
A)Cash Flow Hedge Accounting
B)Critical Term Hedge Accounting
C)Fair Value Hedge Accounting
D)Hedge of Net Investment in Foreign Subsidiary
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Page 15
Chapter 14: Foreign Currency Financial Statements
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Q1) Which of the following assets and/or liabilities are considered monetary?
A)Intangible Assets and Plant,Property,and Equipment
B)Bonds Payable and Common Stock
C)Cash and Accounts Payable
D)Notes Receivable and Inventories carried at cost
Q2) At the time of a business acquisition,
A)identifiable assets and liabilities are allocated the portion of the translation or remeasurement adjustment that existed on the date of acquisition.
B)a foreign entity's assets and liabilities are translated into U.S.dollars using the current exchange rate in effect on that date.
C)the difference between investment fair value and translated net assets acquired is treated as a remeasurement gain or loss on the income statement.
D)the difference between investment fair value and translated net assets acquired is recorded as a cumulative translation adjustment on the balance sheet.
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16
Chapter 15: Segment and Interim Financial Reporting
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Q1) Which of the following conditions would not indicate that two business segments should be classified as a single operating segment?
A)They have similar amounts of intersegment revenues or expenses.
B)They have a similar distribution method for products.
C)They have similar production processes.
D)They have similar products or services.
Q2) GAAP requires disclosures for each reportable operating segment for each of the following,except for A)Revenues.
B)Depreciation expense.
C)R&D expenditures.
D)Extraordinary items.
Q3) What is the threshold for reporting a major customer?
A)5 percent of revenues
B)5 percent of profits
C)10 percent of revenues
D)10 percent of profits
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17
Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) Which of the following is a reason to use a partnership as the legal form of a business?
A)Partnerships avoid the issue of mutual agency.
B)Partnerships avoid the issue of unlimited liability.
C)Partnerships avoid the issue of double-taxation faced by corporations.
D)Partnerships avoid the difficulty of raising capital.
Q2) If the average capital balances for Bertram and Ernest are $200,000 and $240,000,what will the total partnership profit allocations be for Bertram and Ernest in 2011?
A)$100,000 and $140,000
B)$108,000 and $132,000
C)$120,000 and $120,000
D)$140,000 and $100,000
Q3) Required:
1.Prepare a schedule to allocate income or loss to the partners assuming that the partnership incurs a net loss of $26,200 for 2011.
2.Prepare a journal entry to distribute the partnership's loss to the partners (assume that an Income Summary account is used by the partnership).
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Chapter 17: Partnership Liquidation
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Q1) Gains and losses incurred at liquidation are distributed to the partners using the residual profit and loss sharing ratios because
A)using ownership percentages would permit solvent partners to not share profits with insolvent partners.
B)the residual profit and loss ratios represent the ownership percentages.
C)these amounts represent profits and losses from prior periods that would have been shared using the residual profit and loss ratios.
D)using the established profit and loss sharing ratios is not permitted.
Q2) The cash available for distribution to the partners on July 31,2011 is
A)$ 4,000.
B)$ 8,000.
C)$14,000.
D)$22,000.
Q3) Using a safe payments schedule,how much cash should Melvin receive in the first distribution?
A)$ 81,000
B)$165,000
C)$168,600
D)$202,500
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Page 19
Chapter 18: Corporate Liquidations and Reorganizations
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Q1) In a Chapter 7 bankruptcy case,what is the first-to-last ranking order of priority for payment? (Use the following list of claim types. ) I.stockholder claims
II)unsecured priority claims
III)secured claims
IV)unsecured nonpriority claims
A)I,II,IV,and III
B)III,II,IV,and I
C)III,I,IV,and II
D)II,IV,III,and I
Q2) What is an advantage of filing a Chapter 11 petition?
A)The continuation of interest accrual on liabilities
B)Restrictions imposed by the bankruptcy court on day-to-day transactions
C)It is less costly than filing Chapter 7.
D)The opportunity to cancel unfavorable contracts
Q3) A bankruptcy petition filed by a firm's creditors is
A)a Chapter 2 petition.
B)a petition for liquidation.
C)an involuntary petition.
D)a voluntary petition.
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Page 20
Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) Government-wide financial statements include a A)balance sheet,an income statement,and a statement of cash flows.
B)statement of net assets,a statement of activities,and a statement of cash flows.
C)statement of net assets and a statement of activities.
D)statement of activities and a statement of cash flows.
Q2) For each of the following events or transactions,identify the fund or funds that will be affected.
1.A city government charges a fee for the use of the municipal golf course.
2.Interest is paid on state government revenue bonds.
3.A motor pool was established to handle the vehicle needs of a county government.
4.Paid salaries for general governmental employees.
5.Accrued salaries for general governmental employees.
Q3) Approved or authorized expenditures that provide legislative control over the expenditure budget are referred to as A)appropriations.
B)allotments.
C)allocations.
D)encumbrances
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Which statement below is incorrect with respect to the Government-wide financial statements?
A)All governmental fund categories must convert to the modified accrual basis of accounting.
B)It is necessary to eliminate interfund balances within the governmental funds.
C)Capital lease liabilities associated with governmental funds must be included on the Government-wide financial statements.
D)All fixed assets and long-term debt for governmental funds must be included on the Government-wide financial statements.
Q2) Which of the following represents the recording of a budget in the accounts of the General Fund?
A)Debit Appropriations,Credit Estimated Revenues and Credit Fund BalanceUnassigned
B)Debit Appropriations,Credit Estimated Revenues
C)Debit Estimated Revenues,Credit Appropriations,Credit Estimated Other Financing Uses,Credit Fund Balance - Unassigned
D)Debit Estimated Other Financing Uses,Credit Appropriations and Credit Fund BalanceUnassigned
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Chapter 21: Accounting for State and Local Governmental
Units - Proprietary and Fiduciary Funds
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Q1) Prepare journal entries in the motor pool department of Hill County to record each of the following transactions.
1.The General Fund contributed $50,000 cash to the motor pool department.The motor pool department purchased four vehicles on July 1,2011 by paying $50,000 down and borrowing $70,000 on a 5%,3-year note.
2.Billed General Fund departments $430,000 for services provided to those departments.Billings to the Enterprise Fund totaled $210,000.All billings were collected by year-end(June 30,2012)except for $80,000 charged to the General Fund.
3.Accrued year-end adjustments at June 30,2012 for interest expense and depreciation.The useful life of the equipment is 5 years with no salvage value.
Q2) On the Statement of Net Assets,in place of stockholders' equity,proprietary funds report
A)Retained Earnings only.
B)Restricted Cash only.
C)Unrestricted Cash only.
D)Net Assets.
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Page 23
Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) Not-for-profit,private colleges classify student unions,dining halls,and residence halls as
A)educational and general services.
B)auxiliary enterprises.
C)independent operations.
D)restricted enterprises.
Q2) For a Voluntary Health and Welfare Organization,what entry is prepared when the restriction on a cash donation is met?
A)Debit Unrestricted Net Assets,Credit Restricted Net Assets
B)Debit Unrestricted Fund Balance,Credit Restricted Fund Balance
C)Debit Restricted Fund Balance,Credit Unrestricted Fund Balance
D)Debit Temporarily Restricted Net Assets - Reclassifications out,Credit Unrestricted Net Assets - Reclassifications in
Q3) Voluntary health and welfare organizations
A)may not have paid executives or staff.
B)are governed by separate GASB statements.
C)use fund accounting,following the rules for proprietary fund reporting.
D)are supported by,and provide voluntary services to,the public.
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Chapter 23: Estates and Trusts
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Q1) Which of the following phrases is frequently used to refer to estate or trust accounting?
A)Non-profit accounting
B)Testamentary accounting
C)Fiduciary accounting
D)All of the above phrases are used to refer to estate or trust accounting.
Q2) The executor or administrator of a will is required to prepare and file an inventory of property owned by the deceased within what time period?
A)One month of appointment
B)Two months of appointment
C)Three months of appointment
D)45 days of appointment
Q3) Under the Uniform Probate Code,the personal representative must publish for what time period a notice in a newspaper of general circulation in the county in which the decedent resided?
A)For one week
B)For two weeks
C)For three weeks
D)For five weeks
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