International Business and Accounting Exam Review
Course Introduction
International Business and Accounting explores the principles and challenges of conducting business across borders, with a particular focus on the accounting practices that underpin international operations. This course examines global business environments, the impact of international financial regulations, and the complexities arising from differing accounting standards such as IFRS and GAAP. Students will gain insights into cross-cultural management, foreign exchange risk, international taxation, and strategies for global market entry, while developing the analytical skills needed to interpret and compare financial statements from multinational enterprises. The course prepares learners to navigate the dynamic and interconnected world of international commerce and financial reporting.
Recommended Textbook
International Accounting 3rd Edition by Timothy Doupnik
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Page 2
Chapter 1: Introduction to International Accounting
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Q1) Which of the following statements is true about U.S.taxation of foreign subsidiaries?
A)The U.S.does not tax income generated on subsidiaries incorporated in foreign countries.
B)U)S.multinationals pay tax on their worldwide income as soon as it is earned.
C)Transfer pricing will eliminate taxes by the U.S.government on multinational corporations.
D)U)S.tax on foreign operations does not have to be paid until the income is brought back to the United States.
Answer: D
Q2) Which of the following is a reason for foreign direct investment?
A)Reduce costs of doing business
B)Protect domestic markets
C)Protect foreign markets
D)All of the above
Answer: D
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3
Chapter 2: Worldwide Accounting Diversity
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Q1) Differences in legal systems used in various countries have been cited as one reason for diversity in accounting practice. What are the major types of legal systems?
A)commercial law and accounting law
B)rules and regulations
C)written law and unwritten law
D)common law and code law
Answer: D
Q2) What does "transparency" mean in accounting?
A)An emphasis on confidentiality
B)Restricted disclosure of accounting information
C)Flexibility in the application of accounting standards
D)Openness of accounting information
Answer: D
Q3) What is likely to be the source of accounting standards in common law countries?
A)Tax law
B)Non-government entities such as the FASB
C)Federal and local legislatures
D)The International Accounting Standards Board
Answer: B
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Page 4
Chapter 3: International Convergence of Financial Reporting
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Q1) What basis does the International Accounting Standards Board use in formulating its IFRS?
A)Detailed rules to govern accounting practice
B)A framework of accounting principles
C)Typical tax laws of western nations
D)Exceptions or unusual circumstances that require special attention
Answer: B
Q2) Which of the following statements is true about the IASB's approach to accounting standard setting?
A)The IASB approach is very similar to the rules-oriented basis favored by the FASB in the United States.
B)The IASB uses a principles-based approach to standards formulation.
C)The IASB pronouncements have been called a "cookbook" of accounting standards.
D)The Sarbanes-Oxley Act requires the FASB to move toward the approach for standard setting used by the IASB.
Answer: B
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5
Chapter 4: International Financial Reporting Standards:
Part I
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Q1) Agro-World Technologies Inc.incurred $1,000,000 to construct a pilot plant to study the feasibility of building agricultural machinery more inexpensively for emerging economies. How would this cost be classified under IAS 38 (Intangible Assets)?
A)research
B)development
C)neither research nor development
D)It could be either research or development,depending on management's wishes.
Q2) What is the amount of Impairment Loss under U.S.GAAP?
A) 37,000
B) 18,000
C) 15,000
D) 25,000
Q3) Which of the following items should be included in the cost of property,plant,and equipment under IAS 16?
A)all costs directly attributable to getting the asset to the proper location
B)import duties and taxes
C)estimated costs of removing the asset
D)All of the above should be considered part of the cost of the asset.
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Chapter 5: International Financial Reporting Standards:
Part II
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Q1) Which of the following is a difference between IAS 37 and U.S.GAAP with respect to restructuring provisions?
A)U)S.GAAP does not allow recognition of a restructuring provision until a liability has been incurred.
B)There is no difference between IAS 37 and U.S.GAAP with respect to restructuring provisions.
C)IAS 37 does not allow recognition of a restructuring provision until a liability has been incurred.
D)A restructuring provision and related loss is more likely to occur later under IAS 37 than under U.S.GAAP.
Q2) Under IFRS 2,with respect to choice-of-settlement share-based payments,if it is the entity that has the right to choose between equity settlement and cash settlement,when must the entity choose the cash settlement?
A)if the supplier provides services
B)if the supplier provides goods
C)if the entity has a present obligation to settle in cash
D)The entity always has the option to choose either method.
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Page 7
Chapter 6: Comparative Accounting
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Q1) What is the reason given for a relatively low emphasis on public disclosure of financial information in Japan?
A)Significant reliance on bank credit for financing
B)Long-term cross-corporate ownership of stock
C)Income is not viewed as a measure of corporate performance.
D)All of the above
Q2) Keiretsu control about one-fourth (1/4)of the assets in Japan. What cultural value is reflected in this business structure?
A)professionalism
B)optimism
C)collectivism
D)conservatism
Q3) Mexico has had a professional association of public accountants since what year?
A)1821
B)1917
C)1929
D)1964
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Chapter 7: Foreign Currency Transactions and Hedging
Foreign Exchange Risk
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Q1) Which of the following statements is true about hedge accounting under U.S.GAAP?
A)Companies may choose whether to account for derivatives as cash flow hedges or fair value hedges.
B)If a derivative qualifies as a cash flow hedge,a company may choose to account for it as a fair value hedge.
C)If a derivative is considered a cash flow hedge,it must be accounted for as such.
D)Hedge accounting is only advantageous when a foreign currency depreciates between the transaction date and the payment date.
Q2) Under International Accounting Standards Board rules,what method is required to account for foreign currency transactions?
A)A one-transaction perspective must be used.
B)The two-transaction perspective must be used.
C)A sale is not recorded until payment is received and converted to U.S.dollars.
D)A sale is not recorded until payment is received in the foreign currency.
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Chapter 8: Translation of Foreign Currency Financial Statements
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Q1) Under FASB ASC 830,Foreign Currency Matters,what is the definition of "functional currency?"
A)the primary currency used by the parent company
B)the currency that minimizes the translation adjustment on the consolidated financial statements
C)the currency in which the subsidiary does its financial reporting
D)the primary currency used by the subsidiary
Q2) A Danish subsidiary of a U.S.corporation recorded a building it purchased in 2010 for 100,000,000 krone,when the exchange rate was $0.132/krone. The current exchange rate is $0.163/krone. Under the temporal method,how should the translated amount of the restated asset be interpreted?
A)The U.S.parent would have to pay $16,300,000 to acquire the building today.
B)The U.S.parent would have had to pay $13,200,000 to acquire the building in 2010.
C)The building is worth $13,200,000 to the U.S.parent today.
D)none of the above
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Page 10
Chapter 9: Additional Financial Reporting Issues
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Q1) Holding monetary assets during a period of inflation results in:
A)purchasing power gains.
B)purchasing power losses.
C)transaction gains.
D)translation losses.
Q2) How is Goodwill resulting from business combinations treated under Japanese GAAP?
A)It is capitalized and amortized over a period of no more than 40 years.
B)It may be expensed in the year the subsidiary is acquired.
C)It is capitalized and written down when its fair value becomes less than its carrying value.
D)It is amortized over between 5 and 40 years.
Q3) How is negative goodwill accounted for under U.S.GAAP?
A)There is no rule for negative goodwill,because there is no such thing.
B)It should be capitalized and amortized over a period of no more than 40 years.
C)It should be treated as an extraordinary loss on the consolidated income statement.
D)It should be treated as an extraordinary gain on the consolidated income statement.
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Chapter 10: Analysis of Foreign Financial Statements
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Q1) What is the basis for Morgan Stanley Dean Witter's "Apples to Apples" system for financial statement analysis?
A)adjustments needed to compare companies within a single country
B)adjustments needed to compare international companies within specific industries
C)adjustments needed to compare companies in specific countries to U.S.companies
D)adjustments needed to compare the performance of international brokerage firms
Q2) Evaluating liquidity and solvency to assess a company's ability to meet its obligations is an example of:
A)cash flow analysis
B)risk analysis
C)ROI analysis
D)accounting analysis
Q3) Because differences in business traditions and practices could make cross-country ratio analysis difficult,what should an analyst do to overcome this problem?
A)Learn more about the business environment in relevant countries.
B)Make all decisions using nominal monetary differences rather than ratios.
C)Translate all ratios to a common currency.
D)Avoid recommending investments in foreign companies.
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Chapter 11: International Taxation
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Q1) Because some countries have a lower withholding tax on interest than they do for dividends,multinational corporations may finance foreign operations with debt rather than equity. What additional reason may a MNC have for using this investment strategy?
A)Interest is generally a deductible expense,whereas dividends paid are not.
B)Dividends require a cash outflow but interest does not.
C)Cash flows from dividends must be discounted using the cost of capital,which is not the case for interest.
D)all of the above
Q2) An indirect foreign tax credit arises when:
A)taxes paid by a parent on foreign branch income is deducted from taxes owed to the parent's home country.
B)taxes paid by a foreign subsidiary are taken as a credit against a parent's taxes when dividends are received from the subsidiary.
C)taxing jurisdictions agree to share the taxes paid by a foreign subsidiary.
D)a foreign taxing jurisdiction does not tax a subsidiary within its jurisdiction and allows the parent country to tax the foreign source income.
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Chapter 12: International Transfer Pricing
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Q1) Correlative relief is a component of the U.S.Model Income Tax Treaty. What is correlative relief?
A)Additional tax imposed by the IRS related to a transfer pricing audit is offset with a foreign tax credit in the same amount.
B)When the IRS adjusts an international transfer price,the tax authority in the foreign country makes a corresponding adjustment.
C)The burden of revising transfer pricing schemes is offset by reduction of the corporate tax rate on foreign source income.
D)IRS and foreign taxing authorities will collaborate in determining the appropriate international transfer price.
Q2) What is the primary advantage of a negotiated transfer price?
A)It is objectively determined.
B)It reflects managers' ability to control cost.
C)It is based on arms-length transactions with unrelated parties.
D)It preserves managerial autonomy to make decisions.
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14
Chapter 13: Strategic Accounting Issues in Multinational Corporations
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Q1) MSM Ltd has a strategy of being the first to market with new products and so it measures the number of new products introduced each year. Where does this measure fit in the balanced scorecard?
A)financial perspective
B)customer perspective
C)internal business process perspective
D)innovation and learning perspective
Q2) What is a capital investment?
A)using money to buy goods or services
B)issuing shares of stock of the corporation
C)authorizing and issuing shares of common stock by a multinational corporation
D)committing resources to projects that have costs and benefits well into the future
Q3) Which of the following factors should be evaluated during the internal analysis phase of strategic formulation?
A)manufacturing capacity
B)new government regulations pending
C)customer demand
D)strength of the competition
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Chapter 14: Comparative International Auditing and Corporate Governance
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Q1) Which of the following is a factor influencing the probability that an auditor will report a detected error or irregularity?
A)competence of the auditor
B)independence of the auditor
C)quality review and monitoring
D)financial reporting requirements
Q2) What group is responsible for developing international auditing standards?
A)International Accounting Standards Board (IASB)
B)International Auditing and Assurance Standards Board (IAASB)
C)International Organization of Securities Commissions (IOSCO)
D)Organization for Economic Cooperation and Development (OECD)
Q3) What is the role of internal auditing?
A)to substitute for the external auditor whenever possible
B)to provide assurance and consulting services to improve an organization's operations
C)to assist the audit committee in negotiations with the external auditor
D)to mediate disagreements between the external auditor and corporate management
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16
Chapter 15: International Corporate Social Reporting
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Q1) What does G3 represent?
A)an annual summit of countries committed to the reduction of GHGs
B)the third type of GHG
C)the United States,Canada and Mexico
D)the third generation of the GRI's Sustainability Reporting Guidelines
Q2) GRI stands for:
A)Global Research Initiative
B)Global Reporting Initiative.
C)Greenhouse Reporting for Industries
D)Greenhouse Regulation Initiative
Q3) What was a key finding of the 2007 Stern Report in the United Kingdom on the Economics of Climate Change?
A)The costs of extreme weather over the next few decades could reach .5% to 1% of world GDP per annum.
B)Climate change should promote forced savings over the next few decades.
C)Climate change bears little,if any correlation to economic disruption.
D)The costs of extreme weather over the next few decades could reach 10% to 15% of world GDP per annum.
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