International Accounting Exam Practice Tests
Course Introduction
International Accounting provides students with an in-depth understanding of accounting principles, standards, and practices as they apply across different countries and regions. The course examines the impact of cultural, economic, legal, and political influences on financial reporting and disclosure, and explores the convergence and divergence between International Financial Reporting Standards (IFRS) and other major accounting frameworks such as US GAAP. Students learn about currency translation methods, international auditing and taxation issues, transfer pricing, and strategies for financial statement analysis in a global context, preparing them to navigate and interpret complex multinational financial environments.
Recommended Textbook
Advanced Financial Accounting 7th Edition by Thomas H. Beechy
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Chapter 1: Setting the Stage
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Q1) Which of the following Canadian accounting standards are not included in the CICA Handbook?
A)Publicly accountable enterprises
B)Private enterprises
C)Not-for-profit organizations
D)Government
Answer: D
Q2) Which of the following is true about Canadian governmental reporting standards?
A)PSAB standards are recommendations only.
B)PSAB standards are rules that must be followed.
C)PSAB standards must be applied to all provincial public utilities.
D)PSAB standards were developed by the OSC.
Answer: A
Q3) For international standards to be applied effectively, a country does not require
A)professional financial preparers
B)quality auditors
C)an independent enforcement agency
D)companies with ethical managers
Answer: C
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Chapter 2: Intercorporate Equity Investments: an Introduction
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Q1) Passive investments can be classified as fair value through profit or loss (FVTPL)or as fair value through other comprehensive income (FVTOCI). Which of the following statements is true?
A)Under both FVTPL and FVTOCI, changes in the fair value of the investment are reported as other comprehensive income on the statement of comprehensive income.
B)Under both FVTPL and FVTOCI, changes in the fair value of the investment are reported under the net income section on the statement of comprehensive income.
C)Under both FVTPL and FVTOCI, dividends received from the investee are reported under the net income section on the statement of comprehensive income.
D)Under both FVTPL and FVTOCI, dividends received from the investee are reported as other comprehensive income on the statement of comprehensive income.
Answer: C
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4
Chapter 3: Business Combinations
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Q1) Able Ltd. offers to buy shares from the existing shareholders of Wei Co. at a premium price. The current management and board of directors of Wei have let the Wei shareholders know that they do not approve of this. This is an example of a(n)________.
A)open market purchase
B)hostile takeover
C)poison pill strategy
D)reverse takeover
Answer: B
Q2) Perez Co. plans to acquire Roo Co. Roo has substantial depreciable assets that have fair values in excess of their book values. Considering only the income tax impact, which of the following statements is true?
A)Perez would prefer to purchase Roo's assets and Roo would prefer to sell its shares to Perez.
B)Perez would prefer to purchase Roo's shares and Roo would prefer to sell its assets to Perez.
C)Both Perez and Roo would prefer Perez to purchase Roo's shares.
D)Both Perez and Roo would prefer Perez to purchase Roo's assets.
Answer: A
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Page 5
Chapter 3: Appendix A: AIncome Tax Allocation
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Q1) Castle Ltd. acquired 100% of Bello Ltd. At the time of acquisition, Bello had assets with a tax value of $700,000, carrying value of $800,000, and fair value of $950,000. Both Castle and Bello are subject to a tax rate of 40%. What is the effect of recognizing the deferred tax in accounting for the acquisition?
A)Increase in liabilities and goodwill
B)Decrease in liabilities and goodwill
C)Decrease in liabilities and increase in goodwill
D)Increase in liabilities and decrease in goodwill
Q2) Castle Ltd. acquired 100% of Bello Ltd. At the time of acquisition, Bello had assets with a tax value of $700,000, carrying value of $800,000, and fair value of $950,000. Both Castle and Bello are subject to a tax rate of 40%. What is the amount of the deferred tax liability on Castle's consolidated SFP?
A)$40,000
B)$60,000
C)$100,000
D)$280,000
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Chapter 4: Wholly Owned Subsidiaries: Reporting
Subsequent Acquisitions
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Q1) What adjustment should be made to the consolidated financial statements for the year ended December 31, 20X4, with respect to the $10,000 fair value adjustment to inventory?
A)An adjustment should be made through opening retained earnings.
B)An adjustment should be made to cost of sales.
C)No adjustment is required as an adjustment would have already been made to inventory at the time of sale.
D)No adjustment is required as an adjustment would have already been made to cost of sales at the time of sale.
Q2) Inventory was acquired as part of a business combination at the end of 20X1. The inventory was sold in 20X2. How should the fair value increment for the inventory at acquisition be treated for consolidation at the end of 20X2?
A)It should be added to inventory.
B)It should be added to sales.
C)It should be added to the cost of goods sold.
D)It should be added to retained earnings.
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Sample Questions
Q1) Which of the following statements is true with respect to adjusting the deferred tax account on consolidation?
A)Deferred taxes only need to be adjusted for unrealized profits in inventory at the end of the year.
B)Deferred taxes only need to be adjusted for unrealized profits in inventory at the beginning of the year.
C)Deferred taxes need to be adjusted for unrealized profits in inventory at both the beginning and the end of the year.
D)Deferred taxes do not need to be adjusted for unrealized profits.
Q2) What deferred income tax adjustment must Morin make for its consolidated financial statements?
A)Adjustment for any changes in temporary differences due to the difference between carrying values and tax bases of Lightfoot's depreciable capital assets
B)Adjustment for any changes in temporary differences due to the amortization of fair value increments
C)Adjustment for any changes in temporary differences due to the amortization of goodwill
D)No adjustment is necessary.
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Sample Questions
Q1) How should goodwill acquired in a business combination be allocated?
A)Proportionately to assets
B)Proportionately to fair-value increments
C)To cash-generating units
D)It is not allocated.
Q2) Compare and contrast the goodwill impairment test under IFRS and accounting standards for private enterprises (ASPE).
Q3) Under IFRS, how often should goodwill acquired in a business combination be tested for impairment?
A)Whenever there is an indication of impairment
B)Whenever there is a change in circumstances in the business
C)At least once a year
D)At least once every two years
Q4) For private enterprises that have acquired goodwill in a business combination, how often should goodwill be tested for impairment?
A)At least once a year
B)At least once every two years
C)Whenever the parent company deems it necessary
D)Whenever there is a change in circumstances
Chapter 5: Consolidation of Non-Wholly Owned
Subsidiaries
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Q1) Under ASPE reporting requirements for investments in subsidiaries, how should the NCI at the time of acquisition be valued?
A)At fair value
B)At carrying value
C)At the acquiree's proportionate share of net identifiable assets
D)At fair value or at the acquiree's proportionate share of net identifiable assets
Q2) What is the balance of the consolidated inventory account at December 31, 20X6?
A)$160,000
B)$162,000
C)$165,000
D)$168,000
Q3) Which consolidation approach includes only the parent's share of a subsidiary's goodwill?
A)Proportionate consolidation
B)Parent-company method
C)Parent-company extension method
D)Entity method
Q4) Explain why a parent might want to own less than 100% of the shares of a subsidiary.
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Chapter 5: Appendix A: Step Purchases
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Q1) Under the entity method, the balance of the non-controlling interest at December 31, 20X7, was $660,000. What adjustment should be made to the consolidated shareholders' equity to reflect Frey's additional purchase of shares?
A)$30,000
B)$136,667
C)$220,000
D)$250,000
Q2) Under the parent-company extension method, the balance of the non-controlling interest at December 31, 20X7, was $600,000. What adjustment should be made to the consolidated shareholders' equity to reflect Frey's additional purchase of shares?
A)$50,000
B)$66,667
C)$200,000
D)$250,000
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11
Chapter 5: Appendix B: Decreases in Ownership Interest
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Q1) Gumble Ltd. has owned 65% of the common shares of Lopez for several years. This year, Gumble reduced its interest in Lopez to 10%. Which of the following statements is true?
A)Gumble must change from reporting under consolidation to the equity method.
B)Gumble must change from reporting under consolidation to the cost method.
C)Gumble must change from reporting under the equity method to the cost method.
D)Gumble is not required to change its reporting method.
Q2) A parent company reduced its ownership in its subsidiary from 80% to 15%. How should this be reported on the parent's consolidated financial statements?
A)As a disposal of its interest in the subsidiary and a reacquisition of the retained interest at fair value
B)As a disposal of its interest in the subsidiary and a reacquisition of the retained interest at book value
C)As a write-down to the retained interest
D)As an adjustment to the shareholders' equity
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12
Chapter 6: Subsequent-Year Consolidations: General Approach
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Q1) In calculating the non-controlling interest in earnings, what is one of the adjustments that must be made to the subsidiary's separate-entity earnings before the NCI percentage can be applied?
A)Adjust for only realized profits from upstream sales.
B)Adjust for only unrealized profits from upstream sales.
C)Adjust for both realized and unrealized profits from upstream sales.
D)Adjust for both realized and unrealized profits from downstream sales.
Q2) Both companies do not claim depreciation for assets purchased in the second half of the year. For Cooper's December 31, 20X3, separate-entry financial statements, what net book value should be shown for the machine?
A)$125,000
B)$150,000
C)$180,000
D)$250,000
Q3) What is the amount of Goldberg's fair value increments?
A)$54,000
B)$70,000
C)$85,000
D)$121,000
Page 13
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Chapter 6: Appendix A: Preferred and Restricted Shares of Investee Corporation
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Q1) Ngo Ltd.'s subsidiary has restricted shares. What must Ngo look at in determining non-controlling interest?
A)Number of shares only
B)Participation in earnings only
C)Participation in dividends only
D)Participation in earnings and dividends
Q2) Under IFRS, which of the following statements is true?
A)Preferred shares must be classified as debt.
B)Preferred shares must be classified as equity.
C)Preferred shares can be classified as debt or equity depending on the rights attached to them.
D)Preferred shares can be classified as debt or equity at the option of the issuing company.
Q3) A parent company owns a subsidiary's preferred and common shares. How should the acquisition of the preferred shares be treated?
A)In the same manner as common shares
B)As a retirement of shares
C)As an expense
D)As a deduction from retained earnings
Page 14
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Chapter 6: Appendix B: Intercompany Bond Holdings
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Q1) Soft Limited owns 70% of the shares of Hard Co. On January 1, 20X5, Hard Co. issued $1,000,000 bonds payable at 6%, due on December 31, 20X10. The bonds were issued for $907,542, representing a yield of 8%. The interest is paid annually on December 31. On January 1, 20X6, Soft purchased $300,000 face value of Hard bonds for $287,700 when the bonds were yielding 7%.
Required:
Both companies use the effective interest rate to amortize the bonds. Prepare the eliminating journal entries relating to the bonds as they would appear on the consolidated worksheet. The agency method is used. Calculate the consolidated bonds payable account at December 31, 20X6, assuming there are no other bonds outstanding.
Q2) A subsidiary has purchased some bonds from its parent company. Under the par-value method, the non-controlling interest is allocated its share of the difference between ________.
A)the bond's market value and face value
B)the bond's face value and its carrying value on the subsidiary's books
C)the bond's market value and its carrying value on the subsidiary's books
D)the bond's par value and carrying value
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Page 15
Chapter 7: Segment and Interim Reporting
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Q1) Which of the following is not a threshold for identifying a reportable segment?
A)The segment contributes at least 10% of the organization's total revenues.
B)The segment contributes at least 10% of the organization's operating profits.
C)The segment contributes at least 10% of the organization's combined assets of all operating segments.
D)The segment contributes at least 10% of the organization's total expenses.
Q2) Which of the following is not a requirement in defining an operating segment?
A)The particular component must be generating revenue.
B)The particular component's operating results must be reviewed regularly by responsible company officers.
C)The particular component's financial information is routinely available through the organization's financial reporting system.
D)The particular component incurs expenses in its normal cost of activities.
Q3) Which organizations are required to issue interim financial statements?
A)Public companies
B)Private enterprises
C)Both public companies and private enterprises
D)No organizations are required to issue interim financial statements.
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Page 16
Chapter 8: Foreign Currency Transactions and Hedges
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Q1) Which of the following statements about hedge accounting is true?
A)Hedge accounting is mandatory.
B)Hedge accounting is optional.
C)Hedge accounting is applicable only if a receivable is being hedged.
D)Hedge accounting is applicable only if a liability is being hedged.
Q2) Which of the following items is a non-monetary item?
A)Cash
B)Accounts receivable
C)Inventory
D)Accounts payable
Q3) Phan Ltd., a Canadian company, sold goods to a foreign customer for 1,000,000 foreign currency (FC)units, which was equivalent to $500,000 CAD. By the time the customer paid Phan, the exchange rates had changed and 1,000,000 FC units was equivalent to $515,000 CAD. How should the resulting $15,000 CAD difference between the sale and payment dates be treated?
A)As an increase in sales
B)As a decrease to cost of sales
C)As a realized gain
D)As an unrealized gain
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Page 17
Chapter 9: Reporting Foreign Operations
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Q1) A company has translated its foreign subsidiary's financial statements using the temporal method. What is the accounting treatment for exchange gains and losses arising from previous years?
A)Reported as equity
B)Reported in other comprehensive income
C)Reported in consolidated net income
D)Included in opening consolidated retained earnings
Q2) Which of the following accounts would be translated to the reporting currency at the current rate of exchange for an integrated subsidiary?
A)Sales occurring evenly throughout the year
B)Deposits received from customers for services to be rendered
C)Capital assets
D)Inventory carried at market under the lower-of-cost-or-market principle
Q3) Under the temporal method, which of the following items would be translated using the year-end spot rate?
A)Inventory
B)Land
C)Long-term debentures
D)Building
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Page 18
Chapter 10: Financial Reporting for Not-For-Profit Organizations
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Q1) World Doctors (WD)is a not-for-profit organization that provides medical expertise and equipment in areas of the world that cannot afford this type of service or have been struck with a disaster and need additional medical expertise. It is organized with numerous affiliated organizations. Recently, you have been appointed treasurer and the accountant has come to you with the following questions:
1. WD set up a new NFP, which it will use specifically for fundraising purposes. The board of directors of this agency is a separate board, but any funds raised will be paid to WD at the end of each year, after all related costs have been deducted.
2. WD purchased shares in a profit-seeking enterprise that manufactures and distributes medical equipment. The rational for this decision was to be able to get a seat on the board and influence the level of donated equipment made to WD each year. WD purchased 25% in this company.
3. Two directors of WD's board sit on a board (of a total of six members)of an NFP involved in providing relief when disaster strikes around the world.
Required:
Determine the accounting and reporting treatment of the affiliates described above.
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Page 19
Chapter 10: Appendix A: Fund Accounting
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Q1) Which statements are affected by inter-fund loans?
A)Statement of operations and consolidated statements
B)Statement of financial position of the individual funds and consolidated statements
C)Statement of operations and statement of financial position of the individual funds
D)Statement of financial position of the individual funds and statement of changes in net assets
Q2) Sparrow Pension Plan is a not-for-profit organization that administers the pension fund held for the employees of Sparrow Tech Ltd. What type of fund is the pension fund?
A)Reserve fund
B)Self-sustaining fund
C)Fiduciary fund
D)Endowment fund
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Page 20
Chapter 11: Public Sector Financial Reporting
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Q1) One of the objectives of government is to provide services to the public. In order to meet legislated social goals, another major goal of government is to ________.
A)create a surplus
B)reduce taxation
C)redistribute wealth
D)increase Crown assets
Q2) For government accounting purposes, what is the difference between financial and non-financial assets?
A)Financial assets can only be used for providing services, and non-financial assets can only be used for debt repayment.
B)Financial assets can only be used for debt repayment, and non-financial assets can only be used for providing services.
C)Non-financial assets can be used for providing services and debt-repayment, but financial assets can only be used for providing services.
D)Non-financial assets can only be used for providing services, but financial assets can be used for providing services and debt-repayment.
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