International Accounting Final Exam
Course Introduction
International Accounting explores the principles, standards, and practices of accounting in a global context, focusing on how companies and organizations operate and report across different countries. The course examines the similarities and differences between national accounting systems, the process of harmonizing accounting standards (such as through International Financial Reporting Standards, IFRS), and the impact of international business activities on financial reporting. Topics include foreign currency transactions, international financial statement analysis, cross-border mergers and acquisitions, transfer pricing, and the ethical and regulatory challenges faced by multinational firms. Students gain a comprehensive understanding of the complexities involved in preparing and interpreting financial information in an increasingly interconnected global environment.
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 primary responsibility for properly applying GAAP when communicating with investors and creditors through financial statements lies with a firm's auditors.
A)True
B)False
Answer: False
Q2) Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow.
A)True
B)False
Answer: False
Q3) Accounting standard setting has been characterized as:
A)A political process.
B)Using the scientific method.
C)Pure deductive reasoning.
D)Pure inductive reasoning.
Answer: A
Q4) Compute the cash balance at the end of the first year for Tri Fecta.
Answer: 11ea92df_7315_eb84_9bd4_49b4fe51726c_TB5911_00
Page 3
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Chapter 2: Review of the Accounting Process
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Q1) On December 31, 2009, Coolwear, Inc. had balances in its accounts receivable and allowance for uncollectible accounts of $48,400 and $0, respectively. No receivables were written off during the year. At the end of 2009, Coolwear estimated that $2,100 in receivables would not be collected. Bad debt expense for 2009 would be:
A)$ 0.
B)$46,300.
C)$ 1,050.
D)$ 2,100.
Answer: D
Q2) Accounts receivable
Answer: \(\begin{array}{ccc}
& \text { Effect } & \text { Classification } \\ \text { Accounts receivable } & 1 & 1 \end{array}\)
Q3) The income statement summarizes the operating activity of a firm at a particular point in time.
A)True
B)False
Answer: False
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Chapter 3: The Balance Sheet and Financial Disclosures
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Q1) When a company pays its bill from a plumber for previous services on account:
A)Its debt to equity ratio always decreases.
B)Its acid-test ratio always remains unchanged.
C)Its current ratio always remains unchanged.
D)All of these are correct.
Answer: A
Q2) Briefly explain the purpose of the disclosure note on significant accounting policies. Provide two examples of what might be found in this note.
Answer: There are many areas where management chooses from among equally acceptable alternative accounting methods. The summary of significant accounting policies conveys valuable information about the company's choices, which can significantly impact earnings and financial position. Examples include depreciation methods, inventory valuation methods, and revenue recognition methods.
Q3) Payment terms, interest rates, and other details of long-term liabilities usually are reported in disclosure notes.
A)True
B)False
Answer: True
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Chapter 4: The Income Statement and Statement of Cash
Flows
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Q1) Give an example of a non-cash financing and investing activity and explain when and how it would be reported in the financial statements.
Q2) Income from continuing operations sometimes includes gains from non-operating activities.
A)True
B)False
Q3) List at least four operating activities that would be reported in the statement of cash flows for Wal-Mart. Assume the use of the direct method.
Q4) Cash flows from financing activities include:
A)Interest received.
B)Interest paid.
C)Dividends received.
D)Dividends paid.
Q5) Required: Prepare a multiple-step income statement with earnings per share disclosure.
Q6) Explain, using an example, how a company can use earnings management and justify it by conservatism.
Q8) Briefly explain when and why intraperiod tax allocation is necessary. Page 6
Q7) Briefly define extraordinary items and explain how they are reported.
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Chapter 5: Income Measurement
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Q1) Assume that Steffi signed a $50,000 installment note when she signed the franchise agreement. RS can recognize revenue associated with the $50,000
A)when Steffi signs the agreement, so long as RS has sufficient experience with similar arrangements to estimate uncollectible accounts.
B)as soon as they have assisted Steffi in setting up the store, so long as RS has sufficient experience with similar arrangements to estimate uncollectible accounts.
C)Gradually as they provide advertising and administration services.
D)When they receive installment payments from Steffi, so long as RS has sufficient experience with similar arrangements to estimate uncollectible accounts.Substantial performance has occurred, and can estimate bad debts.
Q2) Big Bear Company deals in distressed properties and makes high risk sales. In 2008, the company sold for $250,000 a piece of property that cost $150,000. The cost recovery method was appropriately used. Collections on the sale were: $80,000 in 2008, $120,000 in 2009, and $50,000 in 2010.
Required: Prepare journal entries to record the sale, cash collections, and recognition of gross profit (if appropriate) in 2008, 2009, and 2010.
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Chapter 6: Time Value of Money Concepts
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Q1) Yamaha Inc. hires a new chief financial officer and promises to pay him a lump sum bonus four years after he joins the company. The new CFO insists that the company invest an amount of money at the beginning of each year in a 7% fixed rate investment fund to insure the bonus will be available. To determine the amount that must be invested each year, a computation must be made using the formula for:
A)The future value of a deferred annuity.
B)The future value of an ordinary annuity.
C)The future value of an annuity due.
D)None of these is correct.
Q2) Rosie's Florist borrows $300,000 to be paid off in six years. The loan payments are semiannual with the first payment due in six months, and interest is at 6%. What is the amount of each payment?
A)$25,750.
B)$29,761.
C)$30,139.
D)$25,500.$300,000 9.95400* = $30,139 *PVA of $1: n=12; i=3%
Q3) Briefly describe the differences between an ordinary annuity, an annuity due, and a deferred annuity.
Q4) Provide two examples of the use of present value techniques in accounting.
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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) Explain the reason that Halliburton indicates that its receivables include notes with varying interest rates totaling $12 million at December 31. What significance does this have to the reader?
Q3) In deciding whether financing with receivables is a secured borrowing or a sale, the critical element is the extent to which:
A)The stated interest rates differ from market interest rates.
B)The age of the receivables transferred differs from the average age of the receivables.
C)The transferor of the receivable surrenders control over the assets transferred.
D)The transferee relies on funds from the transferor to maintain operations.
Q4) Using a T-account for the Allowance for Loan Losses, identify the changes in the account during 2009.
Q5) Briefly explain the accounting treatment for sales returns.
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Chapter 8: Inventories: Measurement
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Q1) The ending inventory assuming FIFO is:
A)$5,140.
B)$5,080.
C)$5,060.
D)$5,050.Ending inventory is assumed to consist of 600 gallons from Mar.23 purchase:
600 $7.35 = $4,410 + 100 from the Mar.16 purchase:
100 $7.30 = $730;
Total = $5,140.
Q2) In a perpetual average cost system:
A)A new weighted-average unit cost is calculated each time additional units are purchased.
B)The cost allocated to ending inventory is generally the same as it would be in a periodic inventory system.
C)The moving-average unit cost is determined following each sale.
D)The average is determined by dividing the total number of units sold by the cost of units purchased during the period.
Q3) Briefly explain when there would be a tax benefit from electing LIFO rather than FIFO.
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Chapter 9: Inventories: Additional Issues
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Q1) Included in the computation of the cost-to-retail percentage for the LIFO retail method are:
A)Net markups and net markdowns.
B)Neither net markups nor net markdowns.
C)Net markups, but not net markdowns.
D)Net markdowns, but not net markups.
Q2) On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation. The following information is available: What is the estimated inventory on July 8 immediately prior to the fire?
A)$192,000
B)$490,000
C)$510,000
D)$280,000
Q3) Under the LIFO retail method, which of the following are not included in the denominator of the cost-to-retail conversion percentage?
A)Freight-in
B)Purchase returns
C)Purchases
D)Net markdowns
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Chapter 10: Operational Assets: Acquisition and Disposition
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Q1) In Case B, Grand Forks would record a gain/(loss) of:
A)$ 5,000
B)$ 3,000
C)$(5,000)
D)$(3,000)
Q2) Amortization of capitalized computer software costs is:
A)Either the percentage-of-revenue method or the straight-line method at the company's option.
B)The greater of the percentage-of-revenue method or the straight-line method.
C)The lesser of the percentage-of-revenue method or the straight-line method.
D)Based on neither the percentage-of-revenue nor the straight-line method.
Q3) Interest is eligible to be capitalized as part of an asset's cost, rather than being expensed immediately, when:
A)The interest is incurred during the construction period of the asset.
B)The asset is a discrete construction project for sale or lease.
C)The asset is self-constructed, rather than acquired.
D)All of these are correct.
Q4) Explain the appropriate accounting method used to account for lump sum purchases of a group of operational assets.
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Chapter 11: Operational Assets: Utilization and Impairment
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Q1) An operational asset should be written down if there has been an impairment of value that is:
A)Relevant and objectively determined.
B)Material and market driven.
C)Unplanned and sudden.
D)Significant.
Q2) Using the double-declining balance method, depreciation for 2009 and the book value at December 31, 2009 would be:
A)$26,400 and $45,600.
B)$28,800 and $43,200.
C)$28,800 and $37,200.
D)$26,400 and $36,600.Depreciation, 2009 = $72,000 40% = $28,800 Book value, 12/31/09 = $72,000 28,800 = $43,200
Q3) Accounting for a change in the estimated service life of equipment:
A)Is handled prospectively.
B)Requires retroactive restatement of prior year's financial statements.
C)Requires a prior period adjustment.
D)Is handled currently as a change in accounting principle.
Q4) Briefly explain how a change in depreciation method is accounted for.
Q5) Briefly differentiate between activity-based and time-based allocation methods.
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Chapter 12: Investments
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Q1) Sloan Company has owned an investment during 2009 that has increased in fair value. After all closing entries for 2009 are completed, the effect of the increase in fair value on total shareholders' equity would be:
A)higher under the available-for-sale approach than under the trading-securities approach.
B)lower under the available-for-sale approach than under the trading-securities approach.
C)the same amount under the available-for-sale and trading-securities approaches.
D)not possible to identify whether the available-for-sale or trading-securities approaches yield higher shareholders' equity given this information.unrealized gains end up in retained earnings for trading securities and AOCI for available-for-sale securities, but total shareholders' equity is the same.
Q2) The total amount of additional depreciation to be recognized over the remaining life of the assets is:
A)$4.5 million.
B)$15 million.
C)$27 million.
D)None of these is correct.(in millions)
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Chapter 13: Current Liabilities and Contingencies
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Q1) Bank loans are often arranged in advance as lines of credit. What is a line of credit? How do a committed and a noncommitted line of credit differ?
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) Universal Travel Inc. borrowed $500,000 on November 1, 2009, and signed a 12-month note bearing interest at 6%. Interest is payable in full at maturity on October 31, 2010. In connection with this note, Universal Travel Inc. should report interest payable at December 31, 2009, in the amount of:
A)$ 8,000.
B)$30,000.
C)$ 5,000.
D)$25,000.$500,000 6% 2/12 = $5,000
Q4) How are customer advances and refundable deposits similar and yet different?
Q5) Define a loss contingency and give two examples that almost always are accrued.
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Chapter 14: Bonds and Long-Term Notes
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Q1) List at least three ways that bonds may be taken off the market prior to maturity.
Q2) The debt to equity ratio indicates
A)the margin of safety provided to creditors.
B)the extent of "trading on the equity" or financial leverage.
C)profitability without regard to how resources are financed.
D)the effectiveness of employing resources provided by owners.
Q3) 172.DCL Industries purchased a supply of mechanical components from E Corporation on November 1, 2009. In payment for the $48,000 purchase, DCL issued a 1-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%.
Required:
1. Prepare the journal entry for DCL's purchase of the components on November 1, 2009. 2. Prepare the journal entry for the first installment payment on November 30, 2009.
3. What is the amount of interest expense that LCD will report in its income statement for the year ended December 31, 2009?
Q4) Required: How much interest will Morton Sales Co. pay on these bonds in 2009?
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Chapter 15: Leases
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Q1) Crystal Corporation recorded a lease payment as follows: Crystal must have a(n)
A)Operating lease.
B)Leveraged lease.
C)Capital lease.
D)Direct financing lease.
Q2) On February 1, 2009, Pearson Corporation became the lessee of equipment under a five-year, noncancelable lease. The estimated economic life of the equipment is 8 years. The fair market value of the equipment was $600,000. The lease does not meet the definition of a capital lease in terms of a bargain purchase option, transfer of title, or the lease term. However, Pearson must classify this as a capital lease if the present value of the minimum lease payments is at least
A)$600,000.
B)$540,000.
C)$450,000.
D)$405,000.$600,000 90% = $540,000
Q3) What would be the outstanding balance after payment #10?
A)$0.
B)$ 2,028.
C)$ 8,929.
D)$10,000.Loan completely amortized at that point.
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Chapter 16: Accounting for Income Taxes
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Q1) Which of the following usually results in an increase in a deferred tax liability?
A)Accrual of estimated operating expenses
B)Revenue collected in advance
C)Prepaid operating expenses
D)All of these are correct.
Q2) For its first year of operations Tringali Corporation's reconciliation of pretax accounting income to taxable income is as follows: Tringali's tax rate is 40%.
What should Tringali report as its deferred income tax liability as of the end of its first year of operations?
A)$35,000.
B)$20,000.
C)$14,000.
D)$ 8,000.
Q3) What would Kent's income tax expense be in the year 2009?
A)$61,200.
B)$48,200.
C)$71,200.
D)None of these is correct.
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Chapter 17: Pensions and Other Postretirement Benefits
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Q1) With respect to Ralph, what is the interest cost to be included in Oregon's 2010 postretirement benefit expense, rounded to the nearest dollar?
A)$7,802
B)$7,877
C)$8,766
D)None of these is correct
Q2) Explain how the loss is reported in the financial statements (other than the balance sheet).
Q3) The pension expense includes periodic changes that occur:
A)In the PBO.
B)In the PBO and the plan assets.
C)In the plan assets.
D)In the PBO and the ABO.
Q4) What is the interest cost to be included in the current year's postretirement benefit expense?
A)$3,600.
B)$720.
C)$768.
D)$4,000.APBO at 1/1 = $60,000 4/20 = $12,000 Interest cost = $12,000 6% = $720
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Chapter 18: Shareholders Equity
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Q1) During the current year JET Industries issued 5 million of its $1 par common shares to its underwriters for $25,000,000 less promotional and accounting services of $500,000 to effect the issue.
Required:
Prepare the journal entry to record the issuance of the shares.
Q2) Which of the following statements is true when dividends are not declared or paid on cumulative preferred stock?
A)The shareholders must be allowed to convert their shares to common stock.
B)The unpaid dividends are accrued as a liability.
C)The unpaid dividends are reported in a note to the financial statements.
D)The unpaid dividends accrue interest until paid.
Q3) At the beginning of 2007, Emily Corporation issued 10,000 shares of $100 par, 5%, cumulative, preferred stock for $110 per share. No dividends have been paid to preferred shareholders. What amount of dividends will a shareholder owning 100 shares receive in 2009 if Emily pays $1,000,000 in dividends?
A)$ 500.
B)$ 1,500.
C)$ 1,650.
D)$10,000.$100 5% 100 shares 3 years.
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Chapter 19: Share-Based Compensation and Earnings Per Share
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Q1) Except for tax considerations the potentially dilutive effect of convertible preferred stock is handled in EPS calculations in much the same way as convertible debt.
A)True
B)False
Q2) In computing diluted earnings per share, the treasury stock method is used for:
A)Stock warrants.
B)Stock splits.
C)Reverse stock splits.
D)Convertible preferred stock.
Q3) When computing diluted earnings per share, which of the following will be omitted from the calculation?
A)Dividends paid on common stock.
B)The weighted average common shares.
C)The effect of stock splits.
D)The number of common shares represented by stock purchase warrants.
Q4) Why are earnings per share figures for prior years adjusted for stock splits and stock dividends when data from prior years is presented in comparative financial statements?
Q5) What is an anti-dilutive security?
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Chapter 20: Accounting Changes
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Q1) National Hoopla Company switches from sum-of-the-years' digits depreciation to straight-line depreciation. As a result:
A)Current income tax payable increases.
B)The cumulative effect decreases current period earnings.
C)Prior periods' financial statements are restated.
D)None of these.
Q2) Name and briefly describe the three categories of accounting changes.
Q3) Most changes in accounting principle require a disclosure justifying the change in the first set of financial statements after the change is made.
A)True
B)False
Q4) A change to the LIFO method of valuing inventory usually requires use of the retrospective method.
A)True
B)False
Q5) Prior years' financial statements are restated when the prospective approach is used.
A)True
B)False
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Chapter 21: The Statement of Cash Flows
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Q1) When a transfer is made between cash and cash equivalents with no gain or loss, how is the transaction treated in the statement of cash flows?
A)It is included as an operating activity.
B)It is included as a noncash financing activity.
C)It is included as an investing activity.
D)It is not reported.
Q2) The primary objective of the statement of cash flows is to provide information about a company's:
A)Cash receipts and disbursements.
B)Noncash financing and investing activities.
C)Financial position.
D)Profitability.
Q3) Which of the following is reported as a financing activity in the statement of cash flows?
A)The amortization of a patent.
B)The exchange of common stock for a building.
C)The acquisition of long-term investments.
D)The repayment of bonds issued at par.
Q4) Is depreciation a source of cash? Explain.
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Chapter 22: Appendix a Derivatives
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Q1) The seller in a futures contract derives a loss when interest rates rise.
A)True
B)False
Q2) How are derivatives reported on the balance sheet? Why?
Q3) In an interest rate swap on a fixed rate 8% debt of $100,000, where the floating rate is 6%, the annual net interest settlement in cash is:
A)$0
B)$2,000
C)$6,000
D)$8,000
Q4) Derivatives create either rights or obligations that meet the definition of assets or liabilities.
A)True
B)False
Q5) A gain or loss from a cash flow hedge is recognized immediately in earnings.
A)True
B)False
Q6) In an annual report to shareholders, Merck & Co., Inc. disclosed the following in regard to its financial instruments:
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