International Accounting
Mock Exam
Course Introduction
International Accounting explores the principles, standards, and practices that govern financial reporting and analysis in a global context. The course examines the impact of differing accounting systems, such as International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP), on multinational organizations. Topics include currency translation, consolidation of foreign subsidiaries, international taxation, transfer pricing, and the ethical and regulatory challenges facing accountants in a globalized market. Through case studies and practical exercises, students develop the skills to interpret and apply accounting information across international boundaries and make informed decisions within multinational enterprises.
Recommended Textbook
Advanced Accounting 12th Edition by Hoyle
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Page 2
Chapter 1: The Equity Method of Accounting for Investments
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Sample Questions
Q1) On January 1, 2013, Spark Corp. acquired a 40% interest in Cranston Inc. for $250,000. On that date, Cranston's balance sheet disclosed net assets of $430,000. During 2013, Cranston reported net income of $100,000 and paid cash dividends of $30,000. Spark sold inventory costing $40,000 to Cranston during 2013 for $50,000. Cranston used all of this merchandise in its operations during 2013. Any excess cost over fair value is attributable to an unamortized trademark with a 20 year remaining life.
Required:
Prepare all of Spark's journal entries for 2013 to apply the equity method to this investment.
Answer: 11ea8e0c_b195_6115_b636_977d7c875637_TB2311_00_TB2311_00
11ea8e0c_b195_6116_b636_fded4639f040_TB2311_00_TB2311_00
Q2) What is the justification for the timing of recognition of income under the equity method?
Answer: According to the equity method, the investor should recognize its share of the investee's income in the same period in which it is earned by the investee. The equity method applies accrual accounting when the investor could exercise significant influence over the investee.
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Chapter 2: Consolidation of Financial Information
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Sample Questions
Q1) Which of the following statements is true regarding the acquisition method of accounting for a business combination?
A) Net assets of the acquired company are reported at their fair values.
B) Net assets of the acquired company are reported at their book values.
C) Any goodwill associated with the acquisition is reported as a development cost.
D) The acquisition can only be effected by a mutual exchange of voting common stock.
E) Indirect costs of the combination reduce additional paid-in capital.
Answer: A
Q2) A statutory merger is a(n)
A) business combination in which only one of the two companies continues to exist as a legal corporation.
B) business combination in which both companies continue to exist.
C) acquisition of a competitor.
D) acquisition of a supplier or a customer.
E) legal proposal to acquire outstanding shares of the target's stock.
Answer: A
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4
Chapter 3: Consolidations - Subsequent to the Date of Acquisition
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Sample Questions
Q1) Racer Corp. acquired all of the common stock of Tangiers Co. in 2011. Tangiers maintained its incorporation. Which of Racer's account balances would vary between the equity method and the initial value method?
A) Goodwill, Investment in Tangiers Co., and Retained Earnings.
B) Expenses, Investment in Tangiers Co., and Equity in Subsidiary Earnings.
C) Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.
D) Common Stock, Goodwill, and Investment in Tangiers Co.
E) Expenses, Goodwill, and Investment in Tangiers Co.
Answer: C
Q2) For an acquisition when the subsidiary retains its incorporation, which method of internal recordkeeping gives the most accurate portrayal of the accounting results for the entire business combination?
Answer: The equity method gives the most accurate portrayal of the results for the combined entity.
Q3) What accounting method requires a subsidiary to record acquisition fair value allocations and the amortization of allocations in its internal accounting records?
Answer: The appropriate method is termed push-down accounting.
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Page 5
Chapter 4: Consolidated Financial Statements and Outside Ownership
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Sample Questions
Q1) In comparing U.S. GAAP and international financial reporting standards (IFRS) with regard to a basis for measurement of a non-controlling interest, which of the following is true?
A) U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree's identifiable net asset fair value measurement.
B) U.S. GAAP and IFRS both require acquisition-date fair value measurement.
C) U.S. GAAP and IFRS both require the acquiree's identifiable net asset fair value measurement.
D) U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement.
E) U.S. GAAP and IFRS both apportion goodwill to the parent only.
Q2) How is a non-controlling interest in the net income of an entity reported in the income statement?
Q3) Where should a non-controlling interest appear on a consolidated balance sheet?
Q4) How would you determine the amount of goodwill to be recognized at date of acquisition when there is a non-controlling interest present?
Q5) How does a parent company account for the sale of a portion of an investment in a subsidiary?
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Chapter 5: Consolidated Financial Statements Intra-Entity
Asset Transactions
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Sample Questions
Q1) Yukon Co. acquired 75% percent of the voting common stock of Ontario Corp. on January 1, 2013. During the year, Yukon made sales of inventory to Ontario. The inventory cost Yukon $260,000 and was sold to Ontario for $390,000. Ontario still had $60,000 of the goods in its inventory at the end of the year. The amount of unrealized intra-entity profit that should be eliminated in the consolidation process at the end of 2013 is
A) $15,000.
B) $20,000.
C) $32,500.
D) $30,000.
E) $110,000.
Q2) What is meant by unrealized inventory gains, and how are they treated on a consolidation worksheet?
Q3) Dithers Inc. acquired all of the common stock of Bumstead Corp. on January 1, 2013. During 2013, Bumstead sold land to Dithers at a gain. No consolidation entry for the sale of the land was made at the end of 2013. What errors will this omission cause in the consolidated financial statements?
Q4) Why do intra-entity transfers between the component companies of a business combination occur so frequently?
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Chapter 6: Variable Interest Entities,
Consolidated Cash Flows, and Other Issues
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Sample Questions
Q1) If a subsidiary reacquires its outstanding shares from outside ownership for more than book value, which of the following statements is true?
A) Additional paid-in capital on the parent company's books will decrease.
B) Investment in subsidiary will increase.
C) Treasury stock on the parent's books will increase.
D) Treasury stock on the parent's books will decrease.
E) No adjustment is necessary.
Q2) During 2013, Parent Corporation purchased at book value some of the outstanding bonds of its subsidiary. How would this acquisition have been reflected in the consolidated statement of cash flows?
Q3) A subsidiary issues new shares of common stock at an amount below book value. Outsiders buy all of these shares. Which of the following statements is true?
A) The parent's additional paid-in capital will be increased.
B) The parent's investment in subsidiary will be increased.
C) The parent's retained earnings will be increased.
D) The parent's additional paid-in capital will be decreased.
E) The parent's retained earnings will be decreased.
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Page 8
Chapter 7: Consolidated Financial Statements - Ownership
Patterns and Income Taxes
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Sample Questions
Q1) What configuration of corporate ownership is described as a father-son-grandson relationship?
Q2) Strong Company has had poor operating results in recent years and has a $160,000 net operating loss carry-forward. Leader Corp. pays $700,000 to acquire Strong and is optimistic about its future profitability potential. The book value and fair value of Strong's identifiable net assets is $500,000 at date of acquisition. Strong's tax rate is 30% and Leader's tax rate is 40%. What is goodwill resulting from this business combination?
A) $40,000.
B) $88,000.
C) $104,000.
D) $152,000.
E) $248,000.
Q3) Wilkins Inc. owned 60% of Motumbo Co. During the current year, Motumbo reported net income of $280,000 but paid a total cash dividend of only $56,000. Required:
Assuming an income tax rate of 30%, what amount of Deferred Income Tax Liability arising this year must be recognized in the consolidated balance sheet?
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Page 9
Chapter 8: Segment and Interim Reporting
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Sample Questions
Q1) Which tests must a company use to determine which operating segments require separate disclosure?
A) revenue test and asset test.
B) revenue test, profit or loss test, and asset test.
C) revenue test and profit or loss test.
D) profit or loss test and asset test.
E) revenue test, asset test, and liability test.
Q2) What is meant by the term: disaggregated financial information?
Q3) Which items of information are required to be included in interim reports for each operating segment?
Q4) When defining a reportable segment, which of the following conditions would be sufficient to allow a company to combine two operating segments for purposes of testing?
A) The products sold by each segment are produced in the same plant.
B) Both segments have several customers in common.
C) The segments may sell different products, but they have a similar production process.
D) Both segments are required to adhere to U.S. Department of Labor regulations regarding immigration laws.
E) Both segments are owned by the same parent company.
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Chapter 9: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Sample Questions
Q1) A U.S. company buys merchandise from a foreign company denominated in the foreign currency. Which of the following statements is true?
A) If the foreign currency appreciates, a foreign exchange gain will result.
B) If the foreign currency depreciates, a foreign exchange loss will result.
C) No foreign exchange gain or loss will result.
D) If the foreign currency appreciates, a foreign exchange loss will result.
E) Any gain or loss will be included in comprehensive income.
Q2) A forward contract may be used for which of the following?
1) A fair value hedge of an asset.
2) A cash flow hedge of an asset.
3) A fair value hedge of a liability.
4) A cash flow hedge of a liability.
A) 1 and 3
B) 2 and 4
C) 1 and 2
D) 1, 3, and 4
E) 1, 2, 3, and 4
Q3) How is the fair value of a Forward Contract determined by U.S. GAAP?
Q4) Where can you find exchange rates between the U.S. dollar and most foreign currencies?
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Chapter 10: Translation of Foreign Currency Financial Statements
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Sample Questions
Q1) In translating a foreign subsidiary's financial statements, which exchange rate does the current method require for the subsidiary's assets and liabilities?
A) the exchange rate in effect when each asset or liability was acquired.
B) the average exchange rate for the current year.
C) a calculated exchange rate based on market value.
D) the exchange rate in effect as of the balance sheet date.
E) the exchange rate in effect at the start of the current year.
Q2) What exchange rate would be used to translate the asset and liability account balances of a foreign subsidiary? What justification can be given for using this exchange rate?
Q3) According to U.S. GAAP for a local currency perspective, which method is usually required for translating a foreign subsidiary's financial statements into the parent's reporting currency?
A) the temporal method.
B) the current rate method.
C) the current/noncurrent method.
D) the monetary/nonmonetary method.
E) the noncurrent rate method.
Q4) Contrast the purpose of remeasurement with the purpose of translation.
Page 12
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Chapter 11: Worldwide Accounting Diversity and International Accounting Standards
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Q1) What are the three authoritative pronouncements that make up the International Financial Reporting Standards (IFRS)?
Q2) In the United States, foreign companies filing annual reports with the SEC that are not prepared in accordance with U.S. GAAP must:
A) present financial statements that comply with international GAAP.
B) conform with U.S. GAAP or present a reconciliation to U.S. GAAP.
C) have a demonstrated need for capital to be used for operations in the U.S.
D) use the U.S. dollar as their reporting currency.
E) use IFRS, or use foreign GAAP and provide a reconciliation to U.S. GAAP.
Q3) What international organization currently promulgates IFRS?
A) IASB.
B) IASC.
C) IOSCO.
D) FASB.
E) EU.
Q4) What are the four different ways IFRS can be used by a country?
Q5) What are recognition differences in international reporting and what would be an example of a difference?
Q6) What were the major objectives of the Treaty of Rome?
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Chapter 12: Financial Reporting and the Securities and Exchange Commission
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Sample Questions
Q1) When is the SEC's Registration Form S-4 used?
Q2) The prospectus part of a registration contains all except which of the following?
A) financial statements for the issuing company audited by an independent CPA along with appropriate supplementary data.
B) an explanation of the intended use of the proceeds to be generated by the sale of the new securities.
C) a description of the risks associated with the securities.
D) a description of the business and the properties owned by the company.
E) additional data concerning expenses of issuance.
Q3) Which one of the following forms is used in connection with registration of securities of real estate companies?
A) S-8.
B) S-1.
C) S-4.
D) S-3.
E) S-11.
Q4) What information is required in proxy statements?
Q5) When must Form 8-K be filed with the SEC?
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Chapter 13: Accounting for Legal Reorganizations and Liquidations
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Sample Questions
Q1) What are free assets?
A) assets for which net realizable value is greater than historical cost.
B) assets for which no market exists.
C) assets for which replacement cost is greater than historical cost.
D) assets available to be distributed for liabilities with priority and for other unsecured obligations.
E) assets available to be distributed to stockholders.
Q2) On its balance sheet, a company undergoing reorganization should
A) report its assets at fair value, so that financial statement users can estimate whether creditors' claims will be met.
B) report its assets at net realizable value because there is reason to doubt that the organization is a going concern.
C) report its assets as pledged or free.
D) report its assets at current replacement cost.
E) continue to report its assets at book value.
Q3) Who must accept and confirm the Reorganization plan?
Q4) What are the three categories of assets in a Statement of Financial Affairs?
Q5) What is the difference between a liquidation and a reorganization?
Q6) What is meant by a "partially secured liability"?
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Chapter 14: Partnerships: Formation and Operation
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Sample Questions
Q1) The partnership of Clapton, Seidel, and Thomas was insolvent and will be unable to pay $30,000 in liabilities currently due. What recourse was available to the partnership's creditors?
A) they must present equal claims to the three partners as individuals.
B) they must try obtain a payment from the partner with the largest capital account balance.
C) they cannot seek remuneration from the partners as individuals.
D) they may seek remuneration from any partner they choose.
E) they must present their claims to the three partners in the order of the partners' capital account balances.
Q2) By what methods can a person gain admittance to a partnership?
Q3) Why are the terms of the Articles of Partnership important to partners?
Q4) Which of the following is not a characteristic of a partnership?
A) The partnership itself pays no income taxes.
B) It is easy to form a partnership.
C) Any partner can be held personally liable for all debts of the business.
D) A partnership requires written Articles of Partnership.
E) Each partner has the power to obligate the partnership for liabilities.
Q5) For what events or conditions should the Articles of Partnership make provision?
Page 16
Q6) How is accounting for a partnership different from accounting for a corporation?
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Chapter 15: Partnerships: Termination and Liquidation
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Sample Questions
Q1) A local partnership has assets of cash of $5,000 and a building recorded at $80,000. All liabilities have been paid. The partners' capital accounts are as follows Harry $40,000, Landers $30,000 and Waters 15,000. The partners share profits and losses 4:4:2. If the building is sold for $50,000, how much cash will Waters receive in the final settlement?
A) $5,000.
B) $9,000.
C) $18,000.
D) $28,000.
E) $55,000.
Q2) The Albert, Boynton, and Creamer partnership was in the process of liquidating its assets and going out of business. Albert, Boynton, and Creamer had capital account balances of $80,000, $120,000, and $200,000, respectively, and shared profits and losses in the ratio of 1:3:2. Equipment that had cost $90,000 and had a book value of $60,000 was sold for $24,000 cash.
Required:
Prepare the appropriate journal entry to record the sale of the equipment, distributing any gain or loss directly to the partners.
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Chapter 16: Accounting for State and Local Governments
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Sample Questions
Q1) When a city collects fees from citizens who use the public swimming pool, the money should be recorded in
A) the General Fund.
B) an Enterprise Fund.
C) a Capital Projects Fund.
D) an Agency Fund.
E) an Internal Service Fund.
Q2) Fiduciary funds are
A) Funds used to account for the activities of a government that are carried out primarily to provide services to citizens.
B) Funds used to account for a government's ongoing organizations and activities that are similar to those operated by for-profit organizations.
C) Funds used to account for monies held by the government in a trustee capacity.
D) Funds used to account for all financial resources except those required to be accounted for in another fund.
E) Funds used to account for revenues that have been legally restricted as to expenditure.
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Chapter 17: Accounting for State and Local Governments
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Sample Questions
Q1) A city starts a solid waste landfill during 2012. When the landfill was opened the city estimated that it would fill to capacity within 5 years and that the cost to cover the facility would be $1.5 million which will not be paid until the facility is closed. At the end of 2012, the facility was 20% full, and at the end of 2013 the facility was 45% full. On government-wide financial statements, which of the following are the appropriate amounts to present in the financial statements for 2013?
A) Both expense and liability will be zero.
B) Expense will be $300,000 and liability will be $600,000.
C) Expense will be $600,000 and liability will be $600,000.
D) Expense will be $675,000 and liability will be $600,000.
E) Expense will be $375,000 and liability will be $675,000.
Q2) What are the three broad sections of a state or local government's CAFR?
A) Introductory, financial, and statistical.
B) Financial statements, notes to the financial statements, and component units.
C) Introductory, statistical, and component units.
D) Component units, financial, and statistical.
E) Financial statements, notes to the financial statements, and statistical.
Q3) How is the Statement of Cash Flows for Proprietary Funds similar and dissimilar to a Statement of Cash Flows for a for-profit business?
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Page 19
Chapter 18: Accounting and Reporting for Private
Not-For-Profit Organizations
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Sample Questions
Q1) Wakefield Home is a private not-for-profit healthcare organization offering services for a fee. In the first quarter of 2013, Wakefield Home rendered services of $300,000 to patients. Of this amount 75% will be paid by patients, and $25,000 will be adjusted based on estimated insurance agreements. The remaining amount is to be paid by third party insurance providers.
Record the journal entries that reflect all of this information.
Q2) What criteria must be met before a voluntary health and welfare organization can recognize donated services as a means of support?
Q3) For the month of December 2013, patient charges at Northfield Hospital (a not-for-profit hospital) were $2,720,000. Third-party payors were billed $1,800,000. In this month, there were several patients that had no health insurance and due to their low income level, the hospital decided that $85,000 of receivables would not be collectible.
Required:
Prepare the necessary journal entry to reflect the decision to consider the $85,000 as charity care.
Q4) What is the main source of financial support for most voluntary health and welfare organizations?
Page 20
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Chapter 19: Accounting for Estates and Trusts
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Q1) For which type of trust is the income taxed in the grantor's individual income tax return?
A) Inter vivos trust.
B) Grantor trust.
C) Revocable living trust.
D) Family trust.
E) Irrevocable life insurance trust.
Q2) The provisions of a will currently undergoing probate are: "One thousand shares of Wal-Mart stock to my son; $10,000 in cash from my savings account to my brother; $5,000 in cash to my daughter; and any remaining property divided equally between my son and daughter." At the time of death, the estate included 1,400 shares of Wal-Mart stock and $25,000 cash in the savings account.
What would the son have received from the settlement of the estate?
A) 1,000 shares of Wal-Mart stock and $15,000 cash
B) 1,000 shares of Wal-Mart stock and $0 cash
C) 1,000 shares of Wal-Mart stock and $10,000 cash
D) 1,200 shares of Wal-Mart stock and $5,000 cash
E) 1,400 shares of Wal-Mart stock and $5,000 cash
Q3) What is the purpose of the Uniform Probate Code?
Q4) What is meant by estate accounting?
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