International Accounting
Exam Answer Key
Course Introduction
International Accounting explores the principles, standards, and practices that govern accounting in a global context. The course examines the harmonization of accounting standards worldwide, with a focus on International Financial Reporting Standards (IFRS), and contrasts these with U.S. Generally Accepted Accounting Principles (GAAP) and other national frameworks. Students will analyze challenges faced by multinational corporations, including foreign currency translation, international financial statement analysis, transfer pricing, and the impact of varying tax systems. Practical case studies and real-world examples elucidate the complexities of conducting business and preparing financial reports across different countries and regulatory environments.
Recommended Textbook
Intermediate Accounting IFRS 6th Edition by J. David Spiceland
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Chapter 1: Environment and Theoretical Structure of Financial Accounting
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Q1) The conceptual framework's recognition and measurement concepts recognize which of the following as a principle, rather than an assumption?
A)Periodicity.
B)Monetary unit.
C)Conservatism.
D)Full disclosure.
Answer: D
Q2) The primary professional organization for those accountants working in industry is the:
A)AAA
B)AICPA
C)IIA
D)IMA
Answer: D
Q3) How does SFAC No. 157 define fair value?
Answer: Fair value is defined as the price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
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Chapter 2: Review of the Accounting Process
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Q1) Collected cash on account from customers.
Answer: \(\begin{array}{lccc}
\text { TRANSACTION }&\text { Account(s) } & \text { Account(s) } & \text { Transaction } \\
&\text { debited } & \text { credited } & \text { type } \\
\text { Collected cash on account from customers. }&1111&1132&1 \end{array}\)
Q2) Permanent accounts would not include:
A)Cost of goods sold.
B)Inventory.
C)Current liabilities.
D)Accumulated depreciation.
Answer: A
Q3) Kline's 2009 net income (or loss):
Answer: Kline's 2009 net income (or loss) = $76,000
Computation:
Q4) Based on the information presented above, prepare the 2009 Income Statement for Krafty Foods.
Answer: 11ea92df_7310_e264_9bd4_d5b1c934b5f9_TB5911_00
Page 4
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Chapter 3: The Balance Sheet and Financial Disclosures
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Q1) Which of the following is not a characteristic that defines a reportable operating segment according to U.S. GAAP?
A)Operating results are regularly reviewed by the enterprise's chief operating officer.
B)Discrete financial information is available.
C)Engages in business activities from which it may earn revenues and incur expenses.
D)Represents more than 20% of total company revenues, assets, or net income.
Answer: D
Q2) Accrued expenses:
A)Are generally paid in services rather than cash.
B)Result from payment before services are received.
C)Result from services received before payment.
D)Are deferred charges to expense.
Answer: C
Q3) Altoid Co.'s debt-to-equity ratio
Answer: Debt-to-equity ratio: $(450 + 600) /$(150 + 1,000) = .91
Q4) Compute the times interest earned ratio for Marjoram Company.
Answer: ($73,080 + 31,320 + 11,000) /$11,000 = 10.49 Times interest earned ratio
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Page 5
Chapter 4: The Income Statement and Statement of Cash Flows
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Sample Questions
Q1) An item must meet the subjective criteria of being either unusual or infrequent to be reported as extraordinary.
A)True
B)False
Q2) Cal's Cookies reported 2009 before-tax income before extraordinary items of $152,000 and a before-tax extraordinary loss of $32,000. All tax items are subject to a 30% tax rate. In its 2009 income statement, Cal's would report the following amounts as separate line items for net income and income tax expense:
A)$120,000 and $36,000.
B)$ 84,000 and $45,600.
C)$ 84,000 and $36,000.
D)$120,000 and $45,600.
Q3) Rowdy's would report net cash inflows (outflows) from operating activities in the amount of:
A)$(80).
B)$120.
C)$200.
D)$420.
Q4) Briefly explain when and why intraperiod tax allocation is necessary.
Page 6
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Chapter 5: Income Measurement
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Q1) Firms have free choice as to whether they use the percentage-of-completion method or the completed contract method to account for a long-term contract.
A)True
B)False
Q2) Assume that Steffi signed a $50,000 installment note when she signed the franchise agreement. RS has no experience estimating uncollectible accounts associated with these sorts of notes. They can recognize
A)$50,000 of revenue when Steffi signs the agreement.
B)$50,000 of revenue as soon as they have assisted Steffi in setting up the store.
C)revenue under the installment method, starting when Steffi signs the agreement.
D)revenue under the installment method, as soon as they have assisted Steffi in setting up the store.Substantial performance has occurred, but can't estimate bad debts, so use the installment method.
Q3) Assume that Beavis uses the completed contract method for revenue recognition. Required: Prepare all journal entries to record costs, billings, collections, and profit recognition.
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Chapter 6: Time Value of Money Concepts
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Q1) Tammy wants to buy a car that costs $10,000 and wishes to know the amount of the monthly payments, which will be made at the first of the month, with interest of 12% on the unpaid balance. She should use a table for the:
A)Present value of 1.
B)Present value of an ordinary annuity of 1.
C)Present value of an annuity due of 1.
D)Future value of an annuity due of 1.
Q2) LeAnn wishes to know how much she should set aside now at 7% interest in order to accumulate a sum of $5,000 in four years. She should use a table for the:
A)Present value of 1.
B)Future value of 1.
C)Present value of an ordinary annuity of 1.
D)Future value of an annuity due of 1.
Q3) An annuity is a series of equal periodic payments.
A)True
B)False
Q4) The calculation of future value requires the removal of interest.
A)True
B)False
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Chapter 7: Cash and Receivables
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Q1) Huckabee's 2009 receivables turnover is:
A)3.69.
B)5.00.
C)5.26.
D)3.16.
Q2) Which of the following is considered a sale of receivables:
A)Pledging receivables.
B)Assigning receivables.
C)Factoring receivables without recourse.
D)None of these.
Q3) A company's investment in receivables is affected by several related variables. Give an example of this interrelationship.
Q4) Accounts receivable are normally reported at the:
A)Present value of future cash receipts.
B)Current value plus accrued interest.
C)Expected amount to be received.
D)Current value less expected collection costs.
Q5) Explain the transactions that typically would affect the discount on notes receivable account.
Q6) Briefly explain the accounting treatment for sales returns.
Page 9
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Chapter 8: Inventories: Measurement
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Sample Questions
Q1) Inventory does not include:
A)Materials used in the production of goods to be sold.
B)Assets intended to be sold in the normal course of business.
C)Equipment used in the manufacturing of assets for sale.
D)Assets currently in production for normal sales.
Q2) Purchases equal the invoice amount:
A)Plus freight-in, plus discounts lost.
B)Less purchase returns, plus purchase allowances.
C)Plus freight-in, less purchase discounts.
D)Plus discounts, less purchase returns.
Q3) What is Nueva's gross profit ratio if it elects FIFO?
A)30%.
B)32%.
C)10.7%.
D)60%.
Q4) Ending inventory assuming LIFO in a perpetual inventory system would be:
A)$4,960.
B)$5,060.
C)$5,080.
D)$5,140.
Page 10
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Chapter 9: Inventories: Additional Issues
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Sample Questions
Q1) Inventory written down due to LCM may be written back up if market values go back up.
A)True
B)False
Q2) So. California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2009. In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2009, $300,000; sales and purchases from January 1, 2009, to May 1, 2009, $1,300,000 and $875,000, respectively. So. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2009, is:
A)$302,500.
B)$360,000.
C)$395,000.
D)$455,000.
Q3) When using the gross profit method to estimate ending inventory, it is not necessary to know:
A)Beginning inventory.
B)Net purchases.
C)Cost of goods sold.
D)Net sales.
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Chapter 10: Operational Assets: Acquisition and Disposition
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Q1) What was the final cost of Dreamworld's warehouse?
A)$2,154,480.
B)$2,143,860.
C)$1,950,000.
D)$1,254,000.
Q2) The FASB's required accounting treatment for research and development costs often understates both net income and assets.
A)True
B)False
Q3) Liddy Corp. began constructing a new warehouse for its operations during the current year. In the year Liddy incurred interest of $30,000 on a working capital loan, and interest on a construction loan for the warehouse of $60,000. Interest computed on the average accumulated expenditures for the warehouse construction was $50,000. What amount of interest should Liddy expense for the year?
A)$ 30,000.
B)$ 40,000.
C)$ 90,000.
D)$140,000.
Q4) How are assets valued when they are acquired by issuing stock?
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Chapter 11: Operational Assets: Utilization and Impairment
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Q1) In 2007, Quasar LTD. acquired all of the common stock of Penlight Laser for $124 million. The fair value of Penlight's identifiable tangible and intangible assets totaled $205 million, and the fair value of liabilities assumed by Quasar was $95 million. Quasar performed the required goodwill impairment test at the end of its fiscal year ended December 31, 2009. Management has provided the following information: Required:
1. Determine the amount of goodwill that resulted from the Penlight acquisition.
2. Determine the amount of goodwill impairment loss that Quasar should recognize at the end of 2009, if any.
3. If an impairment loss is required, prepare the journal entry to record the loss. \(\begin{array}{lr}
\text { Fair value of Penlight } & \text { \$115 million } \\
\text { Fair value of Penlight's net assets (excluding goodwill) } & 107 \text { million } \\
\text { Book value of Penlight's net assets (including goodwill) } & 125 \text { million } \end{array}\)
Q2) Briefly differentiate between activity-based and time-based allocation methods.
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Chapter 12: Investments
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Sample Questions
Q1) Previously, marketable equity securities were reported using a technique referred to as "lower of cost or market." The current accounting standard requires fair value reporting for trading securities and securities available for sale. Some accountants believe that the FASB was inconsistent when Statement No. 115 was released requiring changes in the value of trading securities to be reported in the income statement and balance sheet, while changes in the value of securities available for sale are reported only in the balance sheet.
Required:
Evaluate the rationale for these two diverse reporting requirements for equity securities. What arguments could be made to support each treatment?
Q2) When available-for-sale securities are sold, the full amount of any gain or loss realized on the sale is included in before-tax net income.
A)True
B)False
Q3) In 2007, Kirby made two adjustments to its available for sale investments.
Required:
Briefly explain the adjustments and why they occurred.
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Chapter 13: Current Liabilities and Contingencies
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Sample Questions
Q1) The cost of customer premium offers should be charged to expense:
A)When the related product is sold.
B)When the premium offer expires.
C)Over the life cycle of the product to which the premium relates.
D)When the premiums are claimed.
Q2) Current liabilities are normally recorded at the amount expected to be paid rather than at their present value. This practice can be supported by GAAP according to the concept of:
A)Matching.
B)Consistency.
C)Materiality.
D)Conservatism.
Q3) All of the following but one represent collections for third parties. Which one of the following is not a collection for a third party?
A)Sales tax payable.
B)Customer deposits.
C)Employee insurance deductions.
D)Social security taxes deductions.
Q4) Define a loss contingency and give two examples that almost always are accrued.
Q5) How are customer advances and refundable deposits similar and yet different?
Page 15
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Chapter 14: Bonds and Long-Term Notes
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Q1) On January 1, 2009, Solo Inc. issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2019. Solo paid $50,000 in bond issue costs. Solo uses straight-line amortization. The amount of interest expense for the year is:
A)$80,000.
B)$82,000.
C)$78,000.
D)$89,000.Interest consists of cash paid out, $80,000, plus $20,000/10 years.
Q2) Nickel Inc. owns $100,000 of 10-year, 6% bonds as an investment on December 31, 2008. The bonds have 3 years remaining to maturity. The unamortized premium remaining on these bonds was $6,000. Nickel uses straight-line amortization. On May 1, 2009, $10,000 of the bonds were redeemed at 110. How much, and what type of gain or loss, most likely results from this redemption?
A)$467 ordinary gain.
B)$467 extraordinary gain.
C)$467 extraordinary loss.
D)$467 ordinary loss.
Q3) Required: What amount of interest expense will Health Foods accrue on the debentures during fiscal year 2010?
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Chapter 15: Leases
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Q1) Like other assets, the cost of a leasehold improvement is allocated as depreciation expense over its useful life to the lessee, which will be:
A)The shorter of the physical life of the asset or the lease term.
B)The physical life of the asset.
C)The lease term.
D)A time period determined by management.
Q2) When a lease qualifies as a capital lease, what is the cost basis of the asset acquired?
A)The present value of the minimum lease payments, exclusive of executory costs.
B)The present value of the minimum lease payments plus executory costs.
C)The sum of the gross minimum lease payments.
D)The present value of the minimum lease payments plus the present value of executory costs.
Q3) When a capital lease is first recorded at the inception of the lease, the lessee typically debits:
A)Leased asset.
B)Rent expense.
C)Lease expense.
D)Lease receivable.
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Chapter 16: Accounting for Income Taxes
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Q1) Financial statement disclosure of the components of income tax expense:
A)Must be made on the face of the income statement.
B)Usually is included in the footnotes.
C)Is not necessary when only permanent differences exist.
D)Must include the amount of cash paid for taxes.
Q2) A deferred tax asset represents the tax effect of the temporary difference between the financial carrying value of an asset or liability and its tax basis.
A)True
B)False
Q3) Which of the following usually results in an increase in a deferred tax asset?
A)Accelerated depreciation for tax reporting and straight-line depreciation for financial reporting
B)Prepaid insurance
C)Subscriptions delivered for which customers had paid in advance
D)None of these is correct
Q4) Sometimes a temporary difference will produce future deductible amounts. Explain what is meant by future deductible amounts. Describe at least one situation that has this effect. How are future deductible amounts recognized in the financial statements?
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Chapter 17: Pensions and Other Postretirement Benefits
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Q1) Under SFAS 106, accounting for postretirement benefits other than pensions must adhere to the:
A)Accrual basis of accounting.
B)Cash basis of accounting.
C)Modified accrual basis.
D)Modified cash basis.
Q2) What is the present value of Ralph's net benefits as of his expected retirement date, rounded to the nearest dollar?
A)$166,580
B)$222,368
C)$300,000
D)None of these is correct
Q3) Assume the actuary estimates the net cost of providing health care benefits to a particular employee during his retirement years to have a present value of $60,000. If the benefits relate to an estimated 25 years of service and five of those years have been completed,
A)The EPBO would be $12,000.
B)The EPBO would be $8,400.
C)The APBO would be $8,400.
D)The APBO would be $12,000.$60,000 5/25 = $12,000 APBO
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Chapter 18: Shareholders Equity
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Q1) Authorized common stock refers to the total number of shares:
A)Outstanding.
B)Issued.
C)Issued and outstanding.
D)That can be issued.
Q2) Treasury stock transactions never increase retained earnings or net income.
A)True
B)False
Q3) In 2009, Poe's Products completed the treasury stock transactions described below.
January 2: Reacquired 10 million shares at $16 per share.
February 15: Sold 3 million shares at $20 per share.
September 20: Sold 3 million treasury shares at $15 per share.
Poe had issued 50 million shares of its $1 par common stock for $18 several years ago. Required:
Record the above transactions, assuming that Poe's Products uses the cost method. ($ in millions, except per share amounts)
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Chapter 19: Share-Based Compensation and Earnings Per Share
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Q1) Under its executive stock option plan, M Corporation granted options on January 1, 2009, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2011 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures were anticipated, however unexpected turnover during 2010 caused the forfeiture of 5% of the stock options. Ignoring taxes, what is the effect on earnings in 2010?
A)$ 0
B)$18 million
C)$19 million
D)$20 million The $60 million total compensation is expensed equally over the three-year vesting period, reducing earnings by $20 million in 2009.The company should adjust the cumulative amount of compensation expense recorded to date in the year the estimate changes.
Q2) How is a complex capital structure different from a simple capital structure?
Q3) How are outstanding stock options and awards taken into account in computing diluted EPS for V Co.?
Q4) Why are preferred dividends deducted from net income when calculating EPS?
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Chapter 20: Accounting Changes
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Q1) Due to an error in computing depreciation expense, Prewitt Corporation overstated accumulated depreciation by $20 million as of December 31, 2009. Prewitt has a tax rate of 30%. Prewitt's retained earnings as of December 31, 2009, would be:
A)Overstated by $14 million.
B)Understated by $14 million.
C)Overstated by $6 million.
D)Understated by $6 million.
Q2) All changes in estimate are accounted for retrospectively.
A)True
B)False
Q3) A broadcasting company failed to make a year-end accrual of $400,000 for fines due to a violation of FCC rules. Its tax rate is 30%. As a result of this error, net income was: A)Unaffected.
B)Overstated by $400,000.
C)Overstated by $280,000.
D)Overstated by $120,000.$400,000 (1 0%) = $400,000 Fines paid for violations of the law are not tax deductible.
Q4) Describe the approaches of reporting changes in accounting principles.
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Chapter 21: The Statement of Cash Flows
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Q1) Transactions that involve merely purchases or sales of cash equivalents generally are not reported on a statement of cash flows. Describe an exception to this generalization. What is the essential characteristic of the transaction that qualifies as an exception?
Q2) The statement of cash flows has been a required financial statement since 1988, but is the reporting of cash flows a relatively new concept? Explain.
Q3) Which of the following causes a change in cash?
A)Accrual of interest payable.
B)Recording of depreciation expense.
C)Write-off of an uncollectible account.
D)Payment of a cash dividend declared in the previous fiscal year.
Q4) Hogan Company had the following account balances for 2009: Hogan reported net income of $300,000 for 2009. Assuming no other changes in current account balances, what is the amount of net cash provided by operating activities for 2009 reported in the statement of cash flows?
A)$291,000.
B)$290,000.
C)$281,000.
D)$301,000.
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Chapter 22: Appendix a Derivatives
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Q1) The key criterion for qualifying as a hedge is that the hedging relationship:
A)Must be highly effective in achieving offsetting changes in fair values or cash flows.
B)Must have predictable results.
C)Must have fixed outcomes.
D)None of these.
Q2) Arshan Inc. engaged in an interest rate swap on several of its fixed interest debenture notes in order to hedge against interest rate reduction that would raise the value of its debt. Possibly, investor perceptions may cause the value of the debentures to rise beyond the prices due to changes in general interest rates. If they do, the additional increase in the value of the debt:
A)Would be recorded as an extraordinary loss in that accounting period.
B)Would be recorded as part of continuing operations in that period's income statement.
C)Would be recorded as an unrealized loss in that period's income statement.
D)Would be ignored in that accounting period.
Q3) To the extent that a fair value hedge is effective in serving its purpose, the gain or loss on the derivative will be offset by the loss or gain on the item being hedged. Explain.
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