International Accounting Practice Exam
Course Introduction
International Accounting explores the principles and practices of accounting in a global context, focusing on the harmonization and differences among national and international accounting standards. The course examines the impact of cross-border operations on financial reporting, international financial statement analysis, and the role of major standard-setting bodies such as the International Accounting Standards Board (IASB). Topics include foreign currency transactions, translation of financial statements, international tax issues, and the ethical and regulatory challenges faced by multinational corporations. Through case studies and real-world examples, students gain an understanding of how accounting information is used for making strategic decisions in a multinational environment.
Recommended Textbook
Advanced Accounting 6th Edition by
Debra C. Jeter
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Page 2
Chapter 1: Introduction to Business Combinations and the
Conceptual Framework
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Q1) The excess of the amount offered in an acquisition over the prior stock price of the acquired firm is the:
A)bonus.
B)goodwill.
C)implied offering price.
D)takeover premium.
Answer: D
Q2) The defense tactic that involves purchasing shares held by the would-be acquiring company at a price substantially in excess of their fair value is called: A)poison pill.
B)pac-man defense.
C)greenmail.
D)white knight.
Answer: C
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Chapter 2: Accounting for Business Combinations
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Q1) P Co.issued 5,000 shares of its common stock,valued at $200,000,to the former shareholders of S Company two years after S Company was acquired in an all-stock transaction.The additional shares were issued because P Company agreed to issue additional shares of common stock if the average post combination earnings over the next two years exceeded $500,000.P Company will treat the issuance of the additional shares as a (decrease in):
A)consolidated retained earnings.
B)consolidated goodwill.
C)consolidated paid-in capital.
D)non-current liabilities of S Company assumed by P Company.
Answer: C
Q2) SFAS 141R requires that the acquirer disclose each of the following for each material business combination EXCEPT the:
A)name and a description of the acquiree acquired.
B)percentage of voting equity instruments acquired.
C)fair value of the consideration transferred.
D)each of the above is a required disclosure
Answer: D
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Chapter 3: Consolidated Financial Statements Date of Acquisition
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Q1) One reason a parent company may pay an amount less than the book value of the subsidiary's stock acquired is:
A)an undervaluation of the subsidiary's assets.
B)the existence of unrecorded goodwill.
C)an overvaluation of the subsidiary's liabilities.
D)the existence of unrecorded contingent liabilities.
Answer: D
Q2) A newly acquired subsidiary has pre-existing goodwill on its books.The parent company's consolidated balance sheet will:
A)treat the goodwill the same as other intangible assets of the acquired company.
B)will always show the pre-existing goodwill of the subsidiary at its book value.
C)not show any value for the subsidiary's pre-existing goodwill.
D)do an impairment test to see if any of it has been impaired.
Answer: C
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5
Chapter 4: Consolidated Financial Statements After Acquisition
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Q1) Pendleton Company acquired a 70% interest in Sunflower Company on December 31,2016,for $380,000.During 2017 Sunflower had a net income of $30,000 and paid a cash dividend of $10,000.Applying the cost method would give a debit balance in the Investment in Stock of Sunflower Company account at the end of 2017 of:
A)$400,000.
B)$394,000.
C)$373,000.
D)$380,000.
Q2) On January 1,2017,Panda Company purchased 25% of Skill Company's common stock; no goodwill resulted from the acquisition.Panda Company appropriately carries the investment using the equity method of accounting and the balance in Panda's investment account was $190,000 on December 31,2017.Skill reported net income of $120,000 for the year ended December 31,2017 and paid dividends on its common stock totaling $48,000 during 2017.How much did Panda pay for its 25% interest in Skill?
A)$172,000
B)$202,000
C)$208,000
D)$232,000
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Chapter 5: Allocation and Depreciation of Differences
Between Implied and Book Values
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Q1) On November 30,2016,Piani Incorporated purchased for cash of $25 per share all 400,000 shares of the outstanding common stock of Surge Company.Surge 's balance sheet at November 30,2016,showed a book value of $8,000,000.Additionally,the fair value of Surge's property,plant,and equipment on November 30,2016,was $1,200,000 in excess of its book value.What amount,if any,will be shown in the balance sheet caption "Goodwill" in the November 30,2016,consolidated balance sheet of Piani Incorporated,and its wholly owned subsidiary,Surge Company?
A)$0.
B)$800,000.
C)$1,200,000.
D)$2,000,000.
Q2) Push down accounting is an accounting method required for the subsidiary in some instances such as the banking industry.Briefly explain the concept of push down accounting.
Q3) Goodwill represents the excess of the implied value of an acquired company over the:
A)aggregate fair values of identifiable assets less liabilities assumed.
B)aggregate fair values of tangible assets less liabilities assumed.
C)aggregate fair values of intangible assets less liabilities assumed.
D)book value of an acquired company.
Page 7
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Chapter 6: Elimination of Unrealized Profit on Intercompany
Sales of Inventory
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Q1) P Corporation acquired a 60% interest in S Corporation on January 1,2017,at book value equal to fair value.During 2017,P sold merchandise that cost $225,000 to S for $315,000.One-third of this merchandise remained in S's inventory at December 31,2017.S reported net income of $200,000 for 2017.P's income from S for 2017 is:
A)$60,000.
B)$90,000.
C)$120,000.
D)$102,000.
Q2) Sales from one subsidiary to another are called:
A)downstream sales.
B)upstream sales.
C)intersubsidiary sales.
D)horizontal sales.
Q3) Determination of the noncontrolling interest in consolidated net income differs depending on whether intercompany sales are downstream or upstream.Explain the difference in calculating noncontrolling interest for downstream and upstream sales.
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Chapter 7: Elimination of Unrealized Gains or Losses on Intercompany Sales of Property and Equipment
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Q1) In years subsequent to the upstream intercompany sale of nondepreciable assets,the necessary consolidated workpaper entry under the cost method is to debit the:
A)Noncontrolling interest and Retained Earnings (Parent)accounts,and credit the nondepreciable asset.
B)Retained Earnings (Parent)account and credit the nondepreciable asset.
C)Nondepreciable asset,and credit the Noncontrolling interest and Investment in Subsidiary accounts.
D)No entries are necessary.
Q2) In January 2014,S Company,an 80% owned subsidiary of P Company,sold equipment to P Company for $990,000.S Company's original cost for this equipment was $1,000,000 and had accumulated depreciation of $100,000.P Company continued to depreciate the equipment over its 9 year remaining life using the straight-line method.This equipment was sold to a third party on January 1,2017 for $720,000.What amount of gain should P Company record on its books in 2017?
A)$30,000.
B)$60,000.
C)$120,000.
D)$180,000.
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Chapter 8: Changes in Ownership Interest
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Q1) The purchase by a subsidiary of some of its shares from noncontrolling stockholders results in the parent company's share of the subsidiary's net assets:
A)increasing.
B)decreasing.
C)remaining unchanged.
D)increasing,decreasing,or remaining unchanged.
Q2) Which one of the following statements regarding IFRS and accounting for step acquisitions is most correct?
A)Under IFRS goodwill is identified and net assets remeasured to fair value for all subsequent transactions,both increasing and decreasing the ownership percentage,after control is achieved.
B)IFRS requires the recording of additional goodwill on subsequent increases in the parent's ownership percentage.
C)Under IFRS acquisition accounting is applied only at the date that control is achieved.
D)IFRS requires the non-controlling interest to be measured at fair value.
Q3) A parent's ownership percentage in a subsidiary may change for several reasons.Identify three reasons the ownership percentage may change.
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Chapter 9: Intercompany Bond Holdings and
Miscellaneous
Topics Consolidated Financial Statements
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Q1) Search Company is a 90% owned subsidiary of Passage Company.On January 1,2016,Search Company purchased for $680,000 bonds of Passage Company that had a carrying value of $725,000 (par value $700,000).The bonds mature on December 31,2017.Both companies use the straight-line method of amortization and have a December 31 year-end.The increase in 2016 consolidated income (i.e.,income before subtracting noncontrolling interest)is:
A)$45,000.
B)$44,000.
C)$54,000.
D)$36,000.
Q2) From a consolidated entity point of view,the constructive gain or loss on the open market purchase of a parent company's bonds by a subsidiary company is:
A)considered realized at the date of the open market purchase.
B)realized in future periods through discount and premium amortization on the books of the individual companies.
C)realized only to the extent of the parent company's interest in the subsidiary.
D)deferred and recognized in the consolidated income statement when the bonds are retired.
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Chapter 10: Insolvency Liquidation and Reorganization
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Q1) On January 1,2017,Deal Mart owed Money Bank $1,600,000,under an 8% note with three years remaining to maturity.Due to financial difficulties,Deal Mart was unable to pay the previous year's interest.Money Bank agreed to settle Deal Mart's debt in exchange for land having a fair market value of $1,310,000.Deal Mart purchased the land in 2003 for $1,000,000.
Required:
Prepare the journal entries to record the restructuring of the debt by Deal Mart.
Q2) Tangent Corporation was forced into bankruptcy and is in the process of liquidating assets and paying claims.Unsecured claims will be paid at the rate of thirty cents on the dollar.Arrow holds a note receivable from Tangent for $90,000 collateralized by an asset with a book value of $60,000 and a liquidation value of $30,000.The amount to be realized by Arrow on this note is:
A)$30,000.
B)$48,000.
C)$60,000.
D)$90,000.
Q3) Creditors are classified by law as either secured or unsecured.Distinguish among fully secured,partially secured,and unsecured creditors.
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Chapter 11: International Financial Reporting Standards
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Q1) Bruges Electronics Inc.offers one model of laptop computer for £1000 and a two-year warranty for £250.The retailer,as part of a Boxing Day promotion,offers a limited-time offer for the laptop,including delivery and the two-year warranty for £1,180.The cost of the computer to Bruges is £700.Any warranty repairs are assumed to be done ratably over time.Bruges accounts for transactions using the customer consideration model. In the first twelve months following the sale,Bruges incurred £980 of costs servicing the computers under warranty.
In the first twelve months following the sale,Bruges would reduce the Contract liabilitywarranty account by:
A)£784.
B)£980
C)£1,180.
D)£1,380.
Q2) Accounting terminology that differs between IFRS and US GAAP include all of the following EXCEPT:
A)the use by IFRS of "turnover" for revenue.
B)the use by IFRS of "share premium" for additional paid-in-capital.
C)the use by IFRS of "other capital reserves" for retained earnings.
D)the use by IFRS of "issued capital" for common stock.
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Chapter 12: Accounting for Foreign Currency Transactions and Hedging Foreign Exchange Risk
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Q1) A transaction loss would result from:
A)an increase in the exchange rate applicable to an asset denominated in a foreign currency.
B)a decrease in the exchange rate applicable to a liability denominated in a foreign currency.
C)the import of merchandise when the transaction is denominated in a foreign currency.
D)a decrease in the exchange rate applicable to an asset denominated in a foreign currency.
Q2) A transaction gain or loss is reported currently in the determination of income if the purpose of the forward contract is to:
A)hedge a net investment in a foreign entity.
B)hedge an identifiable foreign currency commitment.
C)speculate in foreign currency.
D)none of these.
Q3) There are a number of business situations in which a firm may acquire a forward exchange contract.Identify three common situations in which a forward exchange contract can be used as a hedge.
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Page 14
Chapter 13: Translation of Financial Statements of Foreign
Affiliates
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Q1) P Company acquired 90% of the outstanding common stock of S Company which is a foreign company.The acquisition was accounted for using the purchase method.In preparing consolidated statements,the paid-in capital of S Company should be converted at the:
A)exchange rate effective when S Company was organized.
B)exchange rate effective on the date of purchase of the stock of S Company by P Company.
C)average exchange rate for the period S Company stock has been upheld by P Company.
D)current exchange rate.
Q2) The objective of remeasurement is to:
A)produce the same results as if the books were maintained in the currency of the foreign entity's largest customer.
B)produce the same results as if the books were maintained solely in the local currency. C)produce the same results as if the books were maintained solely in the functional currency.
D)None of these.
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Chapter 14: Reporting for Segments and for Interim
Financial Periods
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Q1) Which of the following does NOT have to be disclosed in interim reports?
A)Seasonal costs or expenses.
B)Significant changes in estimates.
C)Disposal of a segment of a business.
D)All of these must be disclosed.
Q2) SFAS No.131 requires the disclosure of information on an enterprise's operations in different industries for:
A)each annual period presented.
B)each interim period presented.
C)the current period only.
D)each annual period presented and each interim period presented.
Q3) Which of the following disclosures is NOT required to be presented for a firm's reportable segments?
A)Information about segment assets
B)Information about the bases for measurement
C)Reconciliation of segment amounts and consolidated amounts for revenue,profit or loss,assets,and other significant items.
D)All of these must be presented.
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Chapter 15: Partnerships: Formation, operation and Ownership Changes
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Q1) Agler,Bates and Colter are partners who share income in a 5:3:2 ratio.Colter,whose capital balance is $150,000,retires from the partnership.
Required:
Determine the amount paid to Colter under each of the following cases:
(1)$50,000 is debited to Agler capital account; the bonus approach is used.
(2)Goodwill of $60,000 is recorded; the partial goodwill approach is used.
(3)$66,000 is credited to Bates' capital account; the total goodwill approach is used.
Q2) Robbie and Ruben are partners operating a portable toilet lease and maintenance operation.For 2017,net income was $50,000 (without taking into consideration the salary allowances).Robbie and Ruben have salary allowances of $90,000 and $60,000,respectively,and remaining profits and losses are shared 6:4. If their agreement specifies that salaries are allowed only to the extent of income,based on a prorata share of their salary allowances,the division of profits would be:
A)$20,000 and $30,000
B)$50,000 and $-0-
C)$30,000 and $20,000
D)$25,000 and $25,000
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Chapter 16: Partnership Liquidation
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Q1) The first step in the liquidation process is to:
A)convert noncash assets into cash.
B)pay partnership creditors
C)compute any net income (loss)up to the date of dissolution.
D)allocate any gains or losses to the partners.
Q2) X,Y,and Z have capital balances of $90,000,$60,000,and $30,000,respectively.Profits are allocated 35% to X,35% to Y,and 30% to Z.The partners have decided to dissolve and liquidate the partnership.After paying all creditors,the amount available for distribution is $60,000.X,Y,and Z are all personally solvent.Under the circumstances,Z will:
A)receive $18,000.
B)receive $30,000.
C)personally have to contribute an additional $6,000.
D)personally have to contribute an additional $36,000.
Q3) A schedule prepared each time cash is to be distributed is called a(n):
A)advance cash distribution schedule.
B)marshaling of assets schedule.
C)loss absorption potential schedule.
D)safe payment schedule.
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Chapter 17: Introduction to Fund Accounting
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Q1) What journal entry should be made at the end of the fiscal year to close out encumbrances for which goods and services have not been received?
A)Debit reserve for encumbrance and credit encumbrances.
B)Debit reserve for encumbrances and credit fund balance.
C)Debit fund balance and credit encumbrances.
D)Debit encumbrances and credit reserve for encumbrances.
Q2) Under GASB Statement No.34,a government-wide financial statement should include a:
A)statement of revenues & and expenses.
B)statement of activities.
C)statement of financial position.
D)notes to the financial statements.
Q3) The term used to describe the application of accounting to expendable fund entities is the:
A)accrual method.
B)cash method.
C)modified cash method.
D)modified accrual method.
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Chapter 18: Introduction to Accounting for State and Local
Governmental Units
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Q1) When a truck is received by a governmental unit,it should be recorded in the General Fund as a(n):
A)appropriation.
B)encumbrance.
C)expenditure.
D)fixed asset.
Q2) The highest level of priority of pronouncements that a government entity should look to for accounting and reporting guidance is:
A)GASB Technical Bulletins.
B)GASB Concepts Statements.
C)AICPA Industry Accounting Guides.
D)GASB Statements.
Q3) Which of the following is NOT a budgetary account?
A)Appropriations
B)Estimated Revenues
C)Encumbrances
D)Reserve for Encumbrances
Q4) GASB Statement No.34 specifies how governments report capital assets.Describe where capital assets are reported in government financial statements.
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Chapter 19: Accounting for Nongovernment Nonbusiness
Organizations: Colleges and Universities, hospitals, and
Other Health Care Organizations
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Q1) Board designated funds should be accounted for as:
A)restricted funds.
B)specific purpose funds.
C)unrestricted funds.
D)none of these.
Q2) The fund structure and terminology differ among NNOS,but there are six funds commonly used.Identify the funds used by nongovernment nonbusiness organizations.
Q3) All of the following are a plant fund in colleges and universities EXCEPT:
A)unexpended plant fund.
B)funds for renewals and replacements.
C)investment in plant.
D)plant replacement and expansion fund.
Q4) A good reason for NNOs to adopt fund accounting even though FASB standards do NOT require it is because:
A)the capital assets are significant.
B)the donated services are significant.
C)the program services are involved with more than one type of revenue.
D)restrictions are placed by donors in many cases.
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