International Accounting Exam Questions
Course Introduction
International Accounting explores the principles, standards, and practices governing the preparation and presentation of financial statements in a global context. This course examines the differences and similarities between national accounting systems, with a focus on International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP). Students will analyze how multinational corporations address issues such as currency translation, international taxation, transfer pricing, and consolidated financial reporting. The course also considers the impact of cultural, economic, and regulatory environments on accounting practices, preparing students to interpret and compare financial information across borders.
Recommended Textbook
Advanced Accounting 13th Edition by Floyd
A. Beams
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Page 2
Chapter 1: Business Combinations
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Q1) In an acquisition,if the fair value of identifiable assets acquired over liabilities assumed exceed the cost of the acquired company the gain is recognized as an extraordinary gain by the acquiror.
A)True
B)False
Answer: False
Q2) According to ASC 810-10,liabilities assumed in an acquisition will be valued at the ________.
A)fair value
B)historical book value
C)current replacement cost
D)present value using market interest rates
Answer: A
Q3) In August 1999,the Financial Accounting Standards Board issued a report supporting its proposed decision to eliminate the pooling of interests method to account for business combinations.
A)True
B)False
Answer: True
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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 31,2015 was
A)$78,200.
B)$80,000.
C)$81,800.
D)$83,300.
Answer: C
Q2) The income from an equity method investee is reported on one line of the investor company's income statement except when
A)the cost method is used.
B)the investee has extraordinary items.
C)the investor company is amortizing cost-book value differentials.
D)the investor company changes from the cost to the equity method.
Answer: B
Q3) The equity method is often called the dual-line consolidation.
A)True
B)False
Answer: False
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) The consolidated financial statements are primarily for the benefit of managers of the parent company.
A)True
B)False
Answer: False
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
Q3) A parent's income from subsidiary investments can be referred to investment income from subsidiary.
A)True
B)False
Answer: True
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Chapter 4: Consolidated Techniques and Procedures
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Q1) On January 2,2014,PBL Enterprises purchased 90% of Santos Incorporated outstanding common stock for $1,687,500 cash.Santos' net assets had a book value of $1,300,000 at the time.A building with a 15-year remaining life and a book value of $100,000 had a fair value of $175,000.Any other excess amount was attributed to goodwill.PBL reported net income for the first year of $350,000 (without regard for its ownership in Santos),while Santos had $175,000 in earnings.
Required:
1.Calculate the amount of goodwill related to this acquisition as reported on the consolidated balance sheet at January 2,2014.
2.Calculate the amount of consolidated net income for the year ended December 31,2014.
3.What is the amount that will be assigned to the building on the consolidated balance sheet at the date of acquisition?
Q2) Under the equity method of accounting parent-retained earnings and the consolidated-retained earnings are equal.
A)True
B)False
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Page 6
Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) The material sale of inventory items by a parent company to an affiliated company
A)enters the consolidated revenue computation only if the transfer was the result of arm's length bargaining.
B)affects consolidated net income under a periodic inventory system but not under a perpetual inventory system.
C)does not result in consolidated income until the merchandise is sold to outside parties.
D)does not require a working paper adjustment if the merchandise was transferred at cost.
Q2) The ending inventory of the purchasing affiliate reflects the intercompany transfer price.
A)True
B)False
Q3) A subsidiary's realized income is its reported net income adjusted for intercompany profits from upstream sales.
A)True
B)False
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) On January 2,2014,Pal Corporation sold warehouse equipment to SimCo,a wholly-owned subsidiary.The equipment had an original cost of $130,000 and a net book value of $100,000 when it was sold to SimCo for $150,000.Both companies agreed that the equipment had a five-year remaining life and compute depreciation on the straight-line method.The equipment has no salvage value.
Pal reported $470,000 in net income in 2014 (prior to reporting any income from SimCo),and SimCo reported $160,000 in net income.
Required:
1.Calculate consolidated net income for 2014.
2.Determine the controlling share of net income for the year if Pal only owned 75% of SimCo.
3.Determine the controlling share of net income for the year if Pal only owned 75% of SimCo AND the equipment transfer was upstream.
Q2) Gross profit on inventory items sold for use in the operations of an affiliate will be realized for consolidated statement purposes immediately.
A)True B)False
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Page 8
Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) The parent,which controls all debt retirement for the consolidated entity can use its available resources to purchase and retire its own bonds if they choose not to use the fair value option.
A)True
B)False
Q2) 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.
Q3) Constructive retirement means that bonds are retired for consolidated statement purposes because the bond investment and payable items of the parent and the subsidiary are reciprocals that must be eliminated in consolidation.
A)True B)False
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) On April 1,2014,Paramount Company acquires 100% of the outstanding stock of Yester Company on the open market.Paramount and Yester have December 31 fiscal year ends.Under GAAP,a consolidated income statement for the year ending December 31,2014,will include
A)100 percent of the revenues and expenses in 2014 of Yester Company after January 1,2014.
B)no revenues and expenses in 2014 of Yester Company.
C)80 percent of the revenues and expenses in 2014 of Yester Company.
D)100 percent of the revenues and expenses in 2014 of Yester Company after April 1,2014.
Q2) When a parent/investor sells an ownership interest,a gain or loss is recorded where the interest sold does not impact control by the parent company.
A)True
B)False
Q3) Noncontrolling interest share for 2013 is
A)$21,000.
B)$32,400.
C)$36,000.
D)$50,000.
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Chapter 9: Indirect and Mutual Holdings
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Q1) The equation,in a set of simultaneous equations,that computes Paiva Corporation income on a consolidated basis is
A)P = $50,000 + 0.8B.
B)P = $30,000 + 0.2A.
C)P = $100,000 + 0.2A.
D)P = $100,000 + 0.8A.
Q2) Parent stock that is held by the subsidiary is considered outstanding stock and should be reflected as such on the consolidated balance sheet.
A)True
B)False
Q3) The amount of income for the current year assigned to the noncontrolling shareholders of Badock Corporation is
A)$100,000.
B)$104,000.
C)$120,000.
D)$140,000.
Q4) Consolidation procedures for direct and indirect holdings are the same.
A)True
B)False
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Chapter 10: Subsidiary Preferred Stock, consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) The call or redemption price of preferred stock is used to allocate the investee's equity to preferred stockholders.
A)True
B)False
Q2) Net income of an investee with preferred stock outstanding is first allocated to preferred stockholders based on the preferred stock contract.
A)True
B)False
Q3) A disadvantage of filing a consolidated return is intercompany dividends are included in taxable income.
A)True
B)False
Q4) From the viewpoint of a consolidated entity,the parent's purchase of the outstanding subsidiary preferred stock results in the retirement of the stock purchased.
A)True
B)False
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Page 12
Chapter 11: Consolidation Theories, push-Down Accounting, and Corporate Joint Ventures
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Q1) Earth Company,Fire Incorporated,and Wind Incorporated created a joint venture to market their products on the internet.Earth owns 40% of the stock,Fire owns 45% of the stock and Wind owns the remaining 15%.Which firms should report their joint venture investments using the equity method?
A)Earth
B)Fire
C)Earth and Fire
D)Earth,Fire and Wind
Q2) Push-down accounting is the establishment of a new accounting and reporting basis for an entity in its separate financial statements,based on a purchase transaction in the voting stock of the entity that results in a substantial change of ownership of the outstanding voting stock of the entity.
A)True
B)False
Q3) The entity theory requires that the income and equity of a subsidiary be determined for all stockholders; therefore the total amounts will be allocated between controlling and noncontrolling shareholders.
A)True
B)False
Page 13
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) On October 15,2014,Napole Corporation,a French company,ordered merchandise listed on the internet for 20,000 Euros from Adams Corporation,a U.S.corporation.The euro rate was $1.20 (U.S.dollars)on October 15.On November 15,2014 Adams shipped the goods and billed Napole the purchase price of 20,000 Euros when the euro rate was $1.30.Napole paid the bill on December 10,2014,and Adams immediately exchanged the 20,000 Euros for U.S.dollars when the Euro rate was $1.28 on December 10,2014. Required:
Compute the foreign currency gain or loss on the December 31,2014 financial statements of Adams and show the related journal entries.
Q2) If a sale on account by a U.S.company is made with a foreign company,and the U.S.company has no foreign currency risk,then
A)the U.S.company has measured the transaction in U.S.dollars.
B)the U.S.company has denominated the transaction in U.S.dollars.
C)the foreign company has measured the transaction in their own currency.
D)the foreign company has denominated the transaction in their own currency.
Q3) Swaps are contracts to exchange an ongoing stream of cash flows.
A)True
B)False
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Chapter 13: Accounting for Derivatives and Hedging
Activities
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Q1) Opie Industries is a manufacturer of plastic bottles.On September 1,2014,Opie purchased an option contract at a cost of $2,000.The purpose of the option is to hedge against increases in the price of this type of plastic,"PET." The option is to buy 1,000,000 pounds of PET on March 1,2015 for $.75 per pound.If the market price of PET is below $.75 on March 1,Opie will let the option expire.If the market price is above $.75,then Opie will exercise the option.The option is to be settled net.Opie assumes a 6% annual borrowing rate.Assume this is a cash flow hedge.
Required:
Prepare the entry that Opie should record on September 1,2014.Then,assuming that the price of PET is $.72 on December 31,2014 (Opie's year end),prepare the entry that Opie should record.Finally,prepare the entries for March 1,2015,assuming that the price of PET is $.78.
Q2) A highly-effective hedge of an existing asset or liability that is reported on the balance sheet would be recorded using
A)Modified Cash Basis Accounting.
B)Critical Term Hedge Analysis.
C)Fair Value Hedge Accounting.
D)Hedge of Net Investment in Foreign Subsidiary.
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Chapter 14: Foreign Currency Financial Statements
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Q1) When the functional currency of a foreign entity is the U.S.dollar,the foreign entity's accounts are remeasured into its U.S.dollar functional currency.
A)True
B)False
Q2) Which of the following statements about the Current Rate method is false?
A)Translation involves restating the functional currency amounts into the reporting currency.
B)All assets and liabilities are translated at the current rate.
C)If the subsidiary maintains their books in their functional currency,the current rate method is used.
D)The effect of exchange rate changes are reported on the income statement as a foreign exchange gain or loss.
Q3) Which of the following foreign subsidiary accounts will have the same value on consolidated financial statements,regardless of whether the statements are remeasured or translated?
A)Trademark
B)Deferred Income
C)Accounts Receivable
D)Goodwill
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Page 16
Chapter 15: Segment and Interim Financial Reporting
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Q1) Management-approach-based segments are called operating segments.
A)True
B)False
Q2) For reporting purposes,a segment is considered material if its assets are 15 percent or more of the combined assets of all operating segments.
A)True
B)False
Q3) Enterprises must disclose the existence of major customers; the single customer that accounts for 10 percent or more of the enterprise's revenue.
A)True
B)False
Q4) Enterprises must report segment information using the management approach to segmentation.
A)True
B)False
Q5) Pensions and corporate headquarters are all part of an operating segment.
A)True
B)False
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Chapter 16: Partnerships - Formation,operations,and
Changes in Ownership Interests
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Q1) If the partnership agreement provides a formula for the computation of a bonus to the partners,the bonus would be computed
A)next to last,because the final allocation is the distribution of the profit residual.
B)before income tax allocations are made.
C)after the salary and interest allocations are made.
D)in any manner agreed to by the partners in the partnership agreement.
Q2) When property is invested in the partnership,it is recorded at fair value.
A)True B)False
Q3) 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).
Q4) Partnerships do not pay federal taxes but must submit financial information to the IRS.
A)True B)False
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Chapter 17: Partnership Liquidation
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Q1) If a partnership agreement does not specify the ratios for liquidation,the profit- and loss-sharing ratios are used.
A)True
B)False
Q2) In partnership liquidations,what are safe payments?
A)The amounts of distributions that can be made to the partners,after all creditors have been paid in full.
B)The amounts of distributions that can be made to the partners with assurance that such amounts will not have to be returned to the partnership.
C)The amounts of distributions that can be made to the partners,after all non-cash assets have been adjusted to fair market value.
D)The amounts of distributions that can be made to the partners during the liquidation based on the partner's contributed capital return.
Q3) A partnership is considered insolvent if the cash available after all noncash assets have been converted into cash is not enough to pay partnership creditors.
A)True
B)False
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19
Chapter 18: Corporate Liquidations and Reorganizations
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Q1) A company emerging from bankruptcy will have a reorganization value that
A)approximates the book value of the entity's assets prior to bankruptcy.
B)approximates the book value of the entity prior to bankruptcy.
C)approximates the fair market value of the entity without considering liabilities.
D)approximates the fair market value of the entity's liabilities.
Q2) 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
Q3) In the case of Chapter 7 Liquidation,the stockholders are the first to have their claims satisfied.
A)True
B)False
Q4) Creditor committees are elected
A)in all bankruptcy cases.
B)in Chapter 7 cases.
C)only in bankruptcy cases arising from involuntary petitions.
D)in Chapter 11 cases.
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) What basis of accounting is used to prepare Government-wide financial statements?
A)Modified accrual basis
B)Accrual basis
C)Cash basis
D)Fiduciary basis
Q2) For each of the following events or transactions,identify the type of fund(s)that will be affected.
1.A central purchasing department was established to handle all the purchasing needs of a county government.
2.A county government levies sales taxes restricted as to use for job creation.
3.A county government receives a large contribution specifying that income from the contribution be distributed each year to the county zoo.The principal is to remain intact indefinitely.
4.A city government paid construction costs of $12,000 on city hall building.
5.A city government paid general operating costs.
Q3) Capital projects funds and debt service funds are governmental fund types.
A)True
B)False
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) Capital project funds may be used for any capital facilities or other capital assets.
A)True
B)False
Q2) Carson County had the following transactions for their General Fund relating to the levy and collection of property taxes.
1.Property tax bills for $1,000,000 are sent to property tax owners.Taxes are due in 45 days.History shows that Carson County should expect 1.5% of the property taxes to be uncollectible.
2.$850,000 in property taxes is collected.The remaining receivables are past due.
3.An additional $80,000 of the delinquent taxes is collected.
4.Wrote off $10,000 of delinquent taxes determined to be uncollectible. Required:
Prepare the journal entries in the General Fund for the transactions.
Q3) The proper sequence of events is
A)purchase order,appropriation,encumbrance,expenditure.
B)purchase order,encumbrance,expenditure,appropriation.
C)appropriation,encumbrance,purchase order,expenditure.
D)appropriation,purchase order,encumbrance,expenditure.
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Chapter 21: Accounting
for State and Local
Governmental
Units - Proprietary and Fiduciary Funds
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Q1) The accounting equation for proprietary funds: Current Assets - Noncurrent Assets + Current Liabilities - Noncurrent Liabilities = Net position.
A)True
B)False
Q2) On January 1,2014,the Enterprise Fund for a local city receives an intergovernmental capital grant of $100,000 from the state government.Upon receipt of the cash on February 1,2014,qualifying expenses of $100,000 for the operating grant will be incurred.What journal entry did the Enterprise Fund prepare on January 1,2014?
A)Debit Cash $100,000,credit Deferred Revenue $100,000
B)Debit Due From Other Governments $100,000,credit Contributed Capital $100,000
C)Debit Restricted Cash $100,000,credit Nonoperating Revenues $100,000
D)Debit Due From Other Governments $100,000,credit Other Financing Sourcesoperating grant $100,000
Q3) Enterprise funds primarily provide goods and services to government agencies.
A)True
B)False
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) GAAP defines a contribution as unconditional transfer of cash or other assets to an entity or a settlement or cancellation of its liabilities in a voluntary,nonreciprocal transfer by another entity acting other than as an owner.
A)True
B)False
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) The FASB ASC is the primary authority over accounting principles for governmental colleges and universities.
A)True B)False
Q4) Nongovernmental not-for-profit entities follow FASB standards. A)True
B)False
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Chapter 23: Estates and Trusts
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Q1) John Doe's will states that all assets he had should be transferred to a trust to cover living expenses for his spouse,who he feels will not be able to handle her own financial affairs without advice and supervision.Upon his spouse's passing,the trust will be converted to cash and distributed to their only daughter,Jane.The probate court already ruled on which assets could be excluded from the estate,and all tax issues were addressed,leaving the following inventory of assets from the estate: \[\begin{array} { | l | r | r | }
\hline \text { Asset } & \text { Cost } & \text { Fair Value } \\
\hline \text { Cash } & 206,000 & 206,000 \\
\hline \text { Certificates of Deposit } & 250,000 & 250,000 \\
\hline \text { Investments/Mutual Funds } & 354,116 & 2,780,500 \\
\hline \text { Residence } & 34,000 & 190,000 \\
\hline \text { Ocean front cottage } & 78,000 & 560,000 \\
\hline \text { Pepper mill collection } & 2,070 & 3,900 \\
\hline
\end{array}\] Required:
Prepare the journal entry for the creation of the trust.
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