Accounting for Multinational Enterprises Test Bank
Course Introduction
Accounting for Multinational Enterprises explores the principles and practices of accounting within a global business context. This course examines the unique challenges faced by multinational firms, such as foreign currency translation, international financial reporting standards, and the complexities of consolidating financial statements across borders. Students will analyze the impact of differing national regulations, tax systems, and accounting practices on multinational operations, and learn effective strategies for managing financial reporting, performance measurement, and risk assessment in dynamic international markets. Through case studies and practical examples, students gain the knowledge necessary to address accounting issues in multinational enterprises and ensure transparency and compliance in global financial operations.
Recommended Textbook
Advanced Accounting Global 12th Edition by Floyd A. Beams
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Chapter 1: Business Combinations
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Sample Questions
Q1) In reference to international accounting for goodwill, U.S. companies have complained that past U.S. accounting rules for goodwill placed them at a disadvantage in competing against foreign companies for merger partners. Why?
A) Previous rules required immediate write off of goodwill which resulted in a one-time expense that was not required under international rules.
B) Previous rules required amortization of goodwill which resulted in an ongoing expense that was not required under international rules.
C) Previous rules did not permit the recording of goodwill, thus resulting in a lower asset base than international counterparts would recognize.
D) All of the above are correct.
Answer: B
Q2) Under the current GAAP, 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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Sample Questions
Q1) Firms must conduct impairment tests more frequently than annually when A) other shareholders hold more than 50% interest.
B) a "more likely than not" expectation exists that a reporting unit will be sold or disposed of.
C) a specific unit does not have publicly traded stock.
D) using the equity method.
Answer: B
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, 2015 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) A subsidiary can be excluded from consolidation if A) control does not rest with the majority owner.
B) the subsidiary is in legal reorganization.
C) the subsidiary is operating under severe foreign-exchange restrictions.
D) All of the above are correct.
Answer: D
Q2) On June 1, 2014, Puell Company acquired 100% of the stock of Sorrell Inc. On this date, Puell had Retained Earnings of $100,000 and Sorrell had Retained Earnings of $50,000. On December 31, 2014, Puell had Retained Earnings of $120,000 and Sorrell had Retained Earnings of $60,000. The amount of Retained Earnings that appeared in the December 31, 2014 consolidated balance sheet was A) $120,000. B) $130,000. C) $170,000. D) $180,000.
Answer: A
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Chapter 4: Consolidated Techniques and Procedures
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Q1) A parent company uses the equity method to account for its wholly-owned subsidiary. Which of the following will be a correct procedure for the Investment account?
A) A debit for a subsidiary loss and a credit for dividends received
B) A credit for subsidiary income and a debit for dividends received
C) A debit for subsidiary dividends received and a credit for a subsidiary loss
D) A credit for a subsidiary loss and a credit for dividends received
Q2) In contrast with single entity organizations, consolidated financial statements include which of the following in the calculation of cash flows from operating activities under the indirect method?
A) Cash paid to employees
B) Noncontrolling interest dividends paid
C) Noncontrolling interest share
D) Proceeds from the sale of land
Q3) What amount of Goodwill will be reported?
A) $54,400
B) $68,000
C) $72,000
D) $90,000
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Chapter 5: Intercompany Profit Transactions Inventories
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Q1) The 2014 consolidated income statement showed noncontrolling interest share of
A) $3,200.
B) $6,400.
C) $8,800.
D) $12,000.
Q2) What is Pouch's income from Shenley for 2014?
A) $27,200
B) $29,600
C) $39,200
D) $49,000
Q3) The consolidated income statement for Pouch Corporation and subsidiary for the year ended December 31, 2014 will show consolidated cost of sales of
A) $120,000.
B) $136,000.
C) $148,000.
D) $210,000.
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Chapter 6: Intercompany Profit Transactions Plant Assets
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Q1) An elimination entry at December 31, 2014 for the intercompany sale will include a
A) credit of $6,000 to Depreciation Expense.
B) credit of $6,000 to Accumulated Depreciation.
C) credit of $6,000 to Equipment.
D) credit of $6,000 to Gain on Sale of Equipment.
Q2) Which of the following is correct?
A) No consolidation working paper entry is required for this transaction in 2014.
B) A consolidation working paper entry is required only if the subsidiary was less than 100% owned in 2014.
C) A consolidation working paper entry is required each year that Sidd has the land.
D) A consolidated working paper entry was required only if the land was held for resale in 2014.
Q3) The noncontrolling interest share for 2014 was
A) $18,000.
B) $22,000.
C) $23,000.
D) $27,000.
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Chapter 7: Intercompany Profit Transactions Bonds
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Sample Questions
Q1) Consolidated Interest Expense and consolidated Interest Income, respectively, that appeared on the consolidated income statement for the year ended December 31, 2013 was
A) $10,800 and $0.
B) $10,800 and $6,600.
C) $0 and $0.
D) $16,200 and $6,600.
Q2) What was the amount of gain or (loss) from the intercompany purchase of Plenty's bonds on January 2, 2014?
A) $(56,250)
B) $(75,000)
C) $ 75,000
D) $ 56,250
Q3) Bond Interest Receivable for 2013 of Pfadt's bonds on Senat's books was
A) $5,400.
B) $6,000.
C) $10,800.
D) $12,000.
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) At December 31, 2015 year-end, Lapwing Corporation's investment in Ground Inc. was $200,000 consisting of 80% of Ground's $250,000 stockholders' equity on that date. On April 1, 2016, Lapwing sold 20% interest (one-fourth of its holdings) in Ground for $65,000. During 2016, Ground had net income of $75,000(earned uniformly) and on July 1, 2016, Ground paid dividends of $40,000. Lapwing uses the equity method to account for the investment.
Required:
1. What is the gain or loss on sale of the 20% interest?
2. Record the journal entries for Lapwing for the year ending December 31, 2016. Use the actual-sale-date assumption.
Q2) What is Goldberg's percentage ownership in Savannah after Savannah issues its stock to Goldberg?
A) 76.32%
B) 80.43%
C) 82.57%
D) 83.43%
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10
Chapter 9: Indirect and Mutual Holdings
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Sample Questions
Q1) Noncontrolling interest share for Badrack is
A) $9,000.
B) $10,000.
C) $20,000.
D) $40,000.
Q2) Controlling interest share of consolidated net income for Paint Corporation and Subsidiaries is:
A) $234,800.
B) $244,800.
C) $260,000.
D) $270,000.
Q3) Ackroyd's noncontrolling interest share for 2014 is
A) $ 7,609.
B) $ 8,044.
C) $15,652.
D) $23,696.
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Chapter 10: Subsidiary Preferred Stock, Consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) Palmquist Corporation and its 80%-owned subsidiary, Sadler Corporation, are members of an affiliated group. They do not file consolidated tax returns. Sadler had $3,000,000 of income and paid $1,000,000 dividends in 2014. Palmquist and Sadler had 35% income tax rates. What amount of Sadler's dividends is taxable to Palmquist in 2014?
A) $0
B) $ 70,000
C) $160,000
D) $200,000
Q2) What should be the noncontrolling interest share, preferred in the consolidated financial statements of Parminter for the year ending December 31, 2014?
A) $1,000
B) $2,000
C) $4,000
D) $5,000
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Chapter 11: Consolidation Theories, Push-Down Accounting, and Corporate Joint Ventures
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Q1) On July 1, 2013, Parslow Corporation acquired a 75% interest in Sanderson Corporation for $150,000. Sanderson's net assets on this date had a book value of $140,000 and a fair value of $160,000. The excess of fair value over book value at acquisition was due to understated plant assets with a remaining useful life of five years from July 1, 2013. Separate net incomes (excluding investment income) of Parslow and Sanderson for 2014 were $400,000 and $20,000, respectively.
Required:
1. Compute goodwill at July 1, 2013 under the parent company theory and the entity theory.
2. Determine consolidated net income and noncontrolling interest share for 2014 under the parent company theory and the entity theory.
Q2) Under push-down accounting, the ________ of the acquired subsidiary's assets and liabilities are reported on the financial statements of the ________.
A) book value; subsidiary
B) book value; parent
C) fair value; subsidiary
D) present value; parent
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Page 13
Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Sample Questions
Q1) If the sale of the merchandise was denominated in Swiss francs, the November 30 entry to record the receipt of payment from Watchem included a
A) credit to Accounts Receivable for $104,040.
B) credit to Exchange Gain for $3,060.
C) debit to Cash for $107,100.
D) debit to Exchange Loss for $3,060.
Q2) On April 1, 2014, Button Industries enters into an agreement with Bows Incorporated to lock in the price of cotton. Button agrees to purchase (and Bows agrees to sell) 100,000 pounds of cotton at $1.19 per pound, six months from the date of agreement. On October 1, 2014, the price of cotton is $1.17 per pound. The contract allows for net settlement.
Required:
Determine the net settlement on the forward contract.
Q3) What exchange gain or loss appeared on Sooty's 2015 income statement?
A) a loss of $15,000
B) a loss of $5,000
C) a gain of $15,000
D) a gain of $5,000
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Page 14
Chapter 13: Accounting for Derivatives and Hedging Activities
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Sample Questions
Q1) The purchase price of an option contract is typically recorded as
A) an expense.
B) an asset.
C) an amortized cost.
D) a component of shareholders equity.
Q2) Taydus Corporation, a U.S. corporation, sold goods on December 2 to a company overseas, and is now carrying a receivable denominated in euros. Taydus signed a 60-day forward contract on that same date to sell euros. The spot rate was $1.40 on the date they signed the contract and the 60-day forward rate was $1.36. At the end of that month when they closed the books at their fiscal year-end, the spot rate was $1.42 and the 30-day forward rate was $1.40. Assume this is a fair value hedge. The forward contract will not be settled net. What would be reported by Taydus for the year ending December 31?
A) Net exchange gain
B) Net exchange loss
C) Deferred exchange gain
D) Deferred exchange loss
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Page 15
Chapter 14: Foreign Currency Financial Statements
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Q1) If a U.S. company wants to hedge a prospective loss on its investment in a foreign entity that may result from a foreign currency fluctuation, the U.S. company should
A) purchase a forward to swap currency of the foreign entity's local country for U.S. currency.
B) purchase a call option to buy currency of the foreign entity's local country.
C) issue a loan in the foreign entity's local country.
D) borrow money in the foreign entity's local country.
Q2) Exchange gains or losses from remeasurement appear
A) in the continuing operations section of the consolidated income statement.
B) as an extraordinary item on the consolidated income statement.
C) as other comprehensive income typically reported in a statement of stockholders' equity.
D) as an adjustment to the beginning balance of retained earnings on the consolidated Statement of retained earnings.
Q3) 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
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Page 16
Chapter 15: Segment and Interim Financial Reporting
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Sample Questions
Q1) For an operating segment to be considered a reporting segment under the revenue threshold, its reported revenue must be 10% or more of
A) the combined enterprise revenues, eliminating all relevant intracompany transfers and balances.
B) the combined revenues, excluding intersegment revenues, of all operating segments. C) the combined revenues, including intersegment revenues, of all operating segments.
D) the consolidated revenue of all operating segments.
Q2) Jacana Company uses the LIFO inventory method. During the second quarter, Jacana experienced a 100-unit liquidation in its LIFO inventory at a LIFO cost of $430 per unit. Jacana considered the liquidation temporary and expects to replace the units in the third quarter at an estimated replacement cost of $460 a unit. The cost of goods sold computation in the interim report for the second quarter will
A) include the 100 liquidated units at the $460 estimated replacement unit cost.
B) include the 100 liquidated units at the $430 LIFO unit cost.
C) be understated by $3,000.
D) be overstated by $3,000.
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Chapter 16: Partnerships - Formation, Operations, and Changes in Ownership Interests
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Q1) Required:
1. Prepare a schedule to allocate income to the partners assuming that partnership net income for 2014 is $250,000.
2. Prepare a journal entry to distribute the partnership's income to the partners (assume that an Income Summary account is used by the partnership).
Q2) What goodwill will be recorded?
A) $ 80,000
B) $240,000
C) $320,000
D) $400,000
Q3) What is the weighted-average capital for Bertram and Ernest in 2014?
A) $224,000 and $245,000
B) $203,333 and $221,167
C) $221,333 and $239,167
D) $256,000 and $220,000
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Chapter 17: Partnership Liquidation
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Q1) Which partner is considered the most vulnerable as a result of a computation of vulnerability rankings?
A) The partner who has the lowest loss absorption potential
B) The partner who has the highest loss absorption potential
C) The partner with the highest capital account balance
D) The partner with the lowest capital account balance
Q2) A cash distribution plan for the Sammi, Tammy, and Udd partnership was as follows:
Q3) If all partners are included in the first installment of an installment liquidation, then in future installments
A) cash will be distributed according to the residual profit and loss sharing ratios.
B) cash should not be distributed until all non-cash assets are converted into cash.
C) vulnerability rankings for each partner should be prepared.
D) a cash distribution plan must be prepared so that partners will know when they will be included in cash distributions.
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19
Chapter 18: Corporate Liquidations and Reorganizations
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Q1) Which of the following must approve a Chapter 11 plan?
A) The organization's management and the assigned trustee
B) The assigned trustee and creditors
C) The assigned trustee and entity's stockholders
D) The bankruptcy court and the creditors
Q2) Ending Company is in bankruptcy and is being liquidated under the provisions of Chapter 7 of the bankruptcy code. The trustee has converted all assets into $80,000 cash (which includes the amounts shown below for assets sold) and has prepared the following list of approved claims:
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.
Q4) Ohio Corporation is being liquidated under Chapter 7 of the Bankruptcy Act. The trustee has determined that the unsecured claims will receive $.05 on the dollar. Lender Bank holds a $100,000 mortgage note receivable from Ohio that is secured by equipment with a $120,000 book value and a $90,000 fair value, and a second mortgage on the same equipment amounting to $50,000.
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) Because a fund is an accounting entity, each fund has I. its own accounting equation.
II) its own journals, ledgers, and other accounting records.
III) its own separate auditor.
A) I only
B) II only
C) I and II
D) I, II and III
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.
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Prepare journal entries to record the following grant-related transactions for a municipality's special revenue fund.
1. Special Revenue Fund awarded an operating grant from the state, $2,500,000 (cash will be received after qualified expenditures are made).
2. Special Revenue Fund received funds of $1,600,000, temporarily transferred from the General Fund.
3. Incurred qualifying expenditures on the state grant program of $1,600,000 and paid them with funds temporarily transferred from the General Fund.
4. Received a federal grant to finance planting of trees in city, $4,500,000 (cash received in advance).
5. Incurred and paid cost of $3,000,000 for planting 10,000 trees in city.
Q2) Assume you are preparing journal entries for the General Fund under the consumption method. What account should be debited when office supplies are ordered?
A) Appropriations
B) Encumbrances
C) Expenditures
D) Other financing use
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Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) Jefferson County had the following transactions in 2014.
1. $27,000 in membership fees was collected at the municipal pool.
2. A county collects $130,000 in sales taxes on behalf of the cities within its boundaries.
3. A $500,000 bond offering was issued at 102 to fund the construction of a new city hall. The premium on the bonds was transferred to the Debt Service Fund(nonreciprocal).
4. A private foundation contributes a stock portfolio with a fair value of $100,000 to the county. A trust agreement specifies the earnings on the fund is to be used by the local park which is owned and operated by a private foundation, and the principal is to be held intact indefinitely.
5. The county sends bills out for water and sewer provided to residents, amounting to $340,000.
Required:
Prepare the necessary journal entries for each of the above transactions for all funds affected. Be sure to identify the fund type for each entry.
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) Voluntary health and welfare organizations (VHWO) measure contributions at fair value unless
A) fair value is less than the original cost of the item.
B) the contributed item is not intended to be re-sold by the VHWO.
C) fair value cannot be reasonably determined.
D) the contributions are not in cash or cash equivalents.
Q2) In a nonprofit, nongovernmental hospital, courtesy allowances are
A) charity care services.
B) revenue deductions.
C) expenses.
D) revenues earned even if the standard charge is above or below the allowance.
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) Under the Uniform Probate Code, the term "personal representative" refers to which of the following?
A) An executor, but not an administrator
B) An administrator, but not an executor
C) Neither an executor nor an administrator
D) Either an executor or an administrator
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 Revised Uniform Principal and Income Act, gains or losses incurred on investments that occur after the death of the decedent
A) are considered to be income of the estate.
B) are included in the inventory fair value at the time of death.
C) are taxed separately from other estate income.
D) are adjustments to the principal of the estate.
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