International Accounting Exam Materials
Course Introduction
International Accounting explores the principles, standards, and practices of accounting in a global context. This course examines the harmonization and differences between International Financial Reporting Standards (IFRS) and various national accounting systems, highlighting the challenges and opportunities facing multinational corporations. Topics include foreign currency transactions, international financial statement analysis, cross-border mergers and acquisitions, transfer pricing, and the impact of cultural, legal, and economic environments on financial reporting. Students gain an understanding of how global capital markets, international regulations, and diverse business practices influence the preparation and interpretation of financial statements, preparing them for accounting roles in an increasingly interconnected world.
Recommended Textbook
Advanced Accounting 12th Edition by Paul M. Fischer
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Chapter 1: Business Combinations: New Rules for a
Long-Standing Business Practice
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Q1) Larry's Liquor acquired the net assets of Drake's Drinks in exchange for cash.The acquisition price exceeds the fair value of the net assets acquired.How should Larry's Liquor determine the amounts to be reported for the plant and equipment, and for long-term debt of the acquired Drake's Drinks?
\(\quad \)Plant and Equipment \(\quad \)Long-Term Debt
A)\(\quad \)Fair value\(\quad \)\(\quad \)\(\quad \)\(\quad \) \(\quad \)Drake's carrying amount
B)\(\quad \)?Fair value \(\quad \)\(\quad \)\(\quad \)\(\quad \)\(\quad
\)\(\quad \)Fair value
C)\(\quad \)?Drake's carrying amount\(\quad \) Fair value
D)\(\quad \)?Drake's carrying amount \(\quad \)Drake's carrying amount
Answer: B
Q2) A building materials company's acquisition of a television station would be an example of a:
A)market extension merger.
B)conglomerate merger.
C)product extension merger.
D)horizontal merger.
Answer: B
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Chapter 2: Consolidated Statements: Date of Acquisition
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Q1) Consolidated financial statements are designed to provide:
A)informative information to all shareholders.
B)the results of operations, cash flow, and the balance sheet in an understandable and informative manner for creditors.
C)the results of operations, cash flow, and the balance sheet as if the parent and subsidiary were a single entity.
D)subsidiary information for the subsidiary shareholders.
Answer: C
Q2) Pesto Company paid $10 per share to acquire 80% of Sauce Company's 100,000 outstanding shares; however the market price of the remaining shares was $8.50.The fair value of Sauce's net assets at the time of the acquisition was $850,000.In this case, where Pesto paid a premium to achieve control:
A)The total value assigned to the NCI at the date of the acquisition may be less than the NCI percentage of the fair value of the net assets.
B)Goodwill is assigned 80% to Pesto and 20% to the NCI.
C)The NCI share of goodwill would be reduced to zero.
D)Pesto would recognize a gain on the acquisition.
Answer: C
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Chapter 3: Consolidated Statements: Subsequent to Acquisition
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Q1) The method of accounting for subsidiaries that better reflects the investment account on parent-only financial statements is the A)cost method.
B)simple equity method.
C)investment method.
D)sophisticated equity method.
Answer: D
Q2) In a mid-year purchase when the subsidiary's books are not closed until the end of the year, the consolidated net income contains the parent's share of the A)subsidiary's income earned for the entire year.
B)subsidiary's income earned from the beginning of the year to the date of acquisition.
C)subsidiary's income earned from the date of acquisition to the end of the year.
D)dividends received from the subsidiary during the period of ownership.
Answer: C
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Chapter 4: Intercompany Transactions: Merchandise, Plant
Assets, and Notes
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Q1) The 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 entities.
D)does not require a working paper adjustment if the merchandise was transferred at cost.
Q2) If subsidiary net income is $15,000 for Company S and parent Company P has a 75% interest in subsidiary Company S, what would be the elimination entry for the current-year equity income of Company S:
A)Debit Investment in Company S $15,000 and credit Subsidiary Income $15,000
B)Debit Subsidiary Income $11,250 and credit Investment in Company S $11,250
C)Debit Subsidiary Income $15,000 and credit Subsidiary Income $15,000
D)Debit Investment in Company S $11,250 and credit Subsidiary Income $11,250
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Chapter 5: Intercompany Transactions: Bonds and Leases
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Q1) Company S is a 100%-owned subsidiary of Company P.Company S has outstanding 8%, 10-year bonds sold to yield 7%.On January 1 of the current year, Company P purchased all of the Company S outstanding bonds at a price that reflected the current 9% effective interest rate.How should this event be reflected in the current year's consolidated statements?
A)The bonds remain in the balance sheet and are accounted for at a 7% effective rate.
B)The bonds remain in the balance sheet and are accounted for at a 9% effective rate.
C)Retirement of the bonds at a gain as of the purchase date.
D)Retirement of the bonds at a loss as of the purchase date.
Q2) Lease terms can be considered to be "significantly affected":
A)when the terms are the same for affiliated firms as for independent firms.
B)when the terms could not reasonably be expected to occur between independent firms.
C)only if the lease is an operating lease to the lessee and lessor.
D)only if the lease is a direct-financing lease to the lessee and lessor.
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Chapter 6: Cash Flow, Eps, and Taxation
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Q1) Investor has a 40% ownership interest in the common stock of Investee.Investor paid $10,000 more than book value for its 40% interest and regards the excess as attributable to goodwill.If Investee reports income of $200,000 and pays dividends of $50,000, the operating activities of the consolidated statement of cash flows (indirect method) will reflect an adjustment of
A)$80,000
B)$70,000
C)$60,000
D)$20,000
Q2) When an affiliated group elects to be taxed as a single entity, taxable income is calculated based on
A)consolidated income as determined on the consolidated worksheet.
B)each firms separate income.
C)each firms separate income with adjustments for intercompany transactions.
D)none of the above.
Q3) Consolidated firms that meet the tax law requirements to be an affiliated group
A)must file a consolidated return.
B)must receive permission of the Internal Revenue Service to file separately.
C)may elect to file as a single entity or as a consolidated group.
D)cannot change the method of filing in the future.
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Chapter 7: Special Issues in Accounting for an Investment
in a Subsidiary
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Q1) Saddle Corporation is an 80%-owned subsidiary of Paso Company.On January 1, 2016, Saddle sold Paso a machine for $50,000.Saddle's cost was $60,000 and the book value was $40,000.The machine had a 5-year remaining life at the time of the sale.A consolidated balance sheet only is being prepared on December 31, 2019.The retained earnings of the controlling interest requires which of the following adjustments?
A)Debit $4,000
B)Debit $6,000
C)Debit $3,200
D)Debit $4,800
Q2) Pine Company purchased a 60% interest in the Scent Company on January 1, 2016 for $360,000.On that date, the stockholders' equity of Scent Company was $450,000.Any excess cost on 1/1/16 was attributable to goodwill.Pine purchased another 20% interest on January 1, 2019 for $200,000.On January 1, 2019, Scent Company's stockholders' equity was $700,000, the entire increase due to retained earnings.The excess of cost over book on the new block of stock is ____.
A)$60,000
B)$50,000
C)$48,000
D)$20,000
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Chapter 8: Subsidiary Equity Transactions, Indirect
Subsidiary Ownership, and Subsidiary Ownership of Parent Shares
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Q1) Consolidated statements for X, Y, and Z are proper if
A)X owns 100% of the outstanding common stock of Y and 49% of Z; M owns 51% of Z.
B)X owns 100% of the outstanding common stock of Y and 75% of Z; X bought the stock of Z one month before the statement date and sold it 6 weeks later.
C)X owns 100% of the outstanding stock of Y; Y owns 75% of Z.
D)There is no interrelation of financial control among X, Y, and Z; however, they are contemplating the joint purchase of 100% of the outstanding stock of D.
Q2) Which of the following situations is viewed as the parent having treasury stock?
A)A owns 80% of B, and B owns 70% of C.
B)A owns 80% of B and 20% of C; B owns 70% of C.
C)A owns 80% of B, and B owns 20% of A.
D)None of the above.
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Chapter 9: The International Accounting Environment
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Q1) Describe the concept of convergence as it pertains to the FASB and IASB and describe the ways in which this may be accomplished.
Q2) Which of the following is not a responsibility of the International Accounting Standards Board (IASB)?
A)To advise political bodies to enact legislation regulating international business.
B)To establish a single set of international financial reporting standards.
C)To achieve convergence of national accounting standards and IFRS.
D)All are objectives of the IASB.
Q3) Translation of a foreign entity's financial statements into the reporting currency of a domestic entity is typically done
A)to determine if the foreign entity is properly applying IFRS.
B)because the domestic entity has economic losses due to transactions denominated in the foreign entity's currency.
C)to enable a parent company to include its foreign subsidiary's financial statements in its consolidation.
D)to determine if the foreign entity is more profitable than the domestic entity.
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Chapter 10: Foreign Currency Transactions
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Q1) A forward exchange contract is being transacted at a premium if the current forward rate is
A)less than the expected spot rate.
B)greater than the expected spot rate.
C)less than the current spot rate.
D)greater than the current spot rate.
Q2) A bank dealing in foreign currency tells you that the foreign currency will buy you
$.80 US dollars.The bank has given you
A)a direct quote.
B)an indirect quote.
C)the official (fixed) rate.
D)a forward rate.
Q3) Which of the following is not true concerning the accounting for hedges of forecasted transactions using an option?
A)An intrinsic value must be calculated throughout the hedge period
B)The accounting requires revaluing the market value of the option
C)The option fixes the value of the transaction to the date of the commitment.
D)All of these statements are true.
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Chapter 11: Translation of Foreign Financial Statements
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Q1) Which of the following best describes the accounting for a foreign entity requiring translation or re-measurere-measurement if the local economy is classified as highly inflationary?
A)The entity's financial statements are first adjusted for inflation and then translated into the domestic currency.
B)The entity's financial statements are first adjusted for inflation and then re-measurere-measured into the domestic currency.
C)The unadjusted trial balance is translated if the functional currency is the local currency.
D)The unadjusted trial balance is re-measurere-measured regardless of the functional currency.
Q2) Which of the following best describes the normal required method of accounting for statements of foreign entities whose functional currency is the foreign entity's local currency, and in which a U.S.firm has an equity interest?
A)The functional method
B)The monetary-nonmonetary method
C)The current-noncurrent method
D)The temporal method
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Chapter 12: Interim Reporting and Disclosures About
Segments of an Enterprise
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Q1) Ansfield, Inc.has several potentially reportable segments.The following financial information has been determined for the current fiscal year: ?
\[\begin{array} { l r }
\text { Consolidated net income } & \$ 1,000,000 \\
\text { Operating income before taxes } & 1,500,000 \\
\text { Net operating income of all segments } & 1,350,000 \\
\text { Total consolidated revenue } & 8,000,000 \\
\text { Total revenue of all segments, } & \\
\text { excluding intersegment sales } & 7,000,000 \\
\text { Total intersegment sales } & 1,200,000 \\
\text { Consolidated total assets } & 50,000,000 \\
\text { Total assets of all segments } & 45,000,000
\end{array}\] The minimum amount of assets a segment must have to qualify as reportable is ____.
A)$4,500,000
B)$5,000,000
C)$37,500,000
D)The answer cannot be determined from the information given.
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Chapter 13: Partnerships: Characteristics, Formation, and
Accounting for Activities
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Q1) Unlike a corporation, the capital investment in a partnership generally is accounted for through two accounts for each partner, a temporary account referred to as the drawing account and a permanent account referred to as:
A)Stock
B)Cash
C)Capital
D)Salary
Q2) If J & M have an equal partnership and share profit and loss in the agreed ration of 50/50, the entry to record a net income distribution of $100,000.00 would be a credit to J & M capital for $50,000 and a debit to:
A)Assets for $100,000.00
B)Liabilities for$100,000.00
C)Income Summary for $100,000.00
D)Salary Expense for $100,000.00
Q3) Record the entry for the partnership of E & R assuming a net loss of $15,000.The agreement calls for profit and loss to be distributed equally.
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Chapter 14: Partnerships: Ownership Changes and Liquidations
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Q1) Partners X, Y and Z have capital balances of $80, 000, $180,000 and $60,000 respectively.Immediately prior to liquidation.Total remaining assets have a book value of $320,000 and assume liabilities have been paid.There is one remaining asset with a fair market value of $70,000.All three partners agree to share profit and loss equally.Z wishes to take the asset with him and start a new business and would accept $70,000 in cash; the remaining partners agree this would be fair.How much cash in addition to the asset would first be distributed to Z before any of the other partners receive anything?
A)$100,000
B)$240,000
C)$30,000
D)$50,000
Q2) It is possible that an incoming partner may acquire an interest in the partnership at a price less than that indicated by the book value.This situation would suggest the existence of:
A)Write downs on recorded net assets
B)Recognition of loss by all partners
C)Increase in other partners net worth
D)Decrease in other partners net worth
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Chapter 15: Government and Not for Profit Accounting
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Q1) Unlike For Profit organizations, the first step in the closing process is generally to close revenue.What should be the first step in closing for an entity that uses Fund accounting?
A)Close revenue
B)Close expense
C)Close budgetary entries
D)Close Fund Balances
Q2) GASB standards for recording pension expenses require a calculation of the difference between the pension plan's total liabilities and the pensions:
A)Permanent Life
B)Accrued liabilities
C)Plans Assets
D)Plans estimated useful Life
Q3) State and local governments are likely to follow which of the following:
A)FASB
B)AICPA
C)GASB
D)AICMA
Q4) Identify the three fund types used in government accounting and their relevance:
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Chapter 16: Governmental Accounting: Other
Governmental Funds, Proprietary Funds, and Fiduciary Funds
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Q1) If a county collects taxes on behalf of the city and school district, it would record the taxes in the
A)General Fund.
B)Special Revenue Fund.
C)Agency Fund.
D)Trust Fund.
Q2) The best fund in which to account for the interest and dividends from an endowment to purchase library books would be a(n)
A)Private-Purpose Trust Fund
B)Agency Fund.
C)Endowment Fund.
D)Nonexpendable Trust Fund.
Q3) The main difference between an agency fund and a trust fund is:
A)an agency fund may not have a balance at the end of the period
B)agency funds account for assets invested to produce earnings for a designated purpose
C)agency funds account for assets, liabilities, and changes in net assets of external participants in an investment pool
D)agency funds account for contributions to retirement plans
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Chapter 17: Financial Reporting Issues
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Q1) General fixed assets, including infrastructure assets, and general long-term debt are included only in the government-wide financial statements.
A)True
B)False
Q2) GASB Statement No.34 requires the reporting for internal service funds by
A)combining income statement results with general fund activities
B)requiring internal service funds to be reported separately as major funds
C)classifying internal service funds as proprietary funds, labeled as government activities
D)All of the above
Q3) Required supplementary information includes all of the following except for:
A)A budgetary comparison statement or schedule
B)Management discussion and analysis
C)pension related information
D)information about the condition of infrastructure assets
Q4) Required supplementary information includes pension-related information, but not a budgetary comparison or schedule.
A)True
B)False
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Chapter 18: Accounting for Private Not-For-Profit Organizations
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Q1) A major corporation makes a donation of $10,000,000 to the local art museum foundation for the construction of a new art museum provided the community can match the $10,000,000 with other donations.This is an example of a(n):
A)Unconditional Pledge
B)Unrestricted Contribution
C)Conditional Pledge
D)Endowment
Q2) A major corporation makes a donation of $10,000,000 to the local art museum foundation for the construction of a new art museum provided the community can match the $10,000,000 with other donations.At the time the donation is received, it should be recorded as:
A)Contribution Revenue - Temporarily Restricted
B)Contribution Revenue - Unrestricted with a corresponding entry to Provision for Uncollectible Contributions
C)Plant Fund Assets
D)Refundable Advance
Q3) Describe the circumstances that must be true in order for donated, personal services to be recorded as revenue (contributions) in a not-for-profit organization.
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Chapter 19: Accounting for Not-For-Profit Colleges and Universities and Health Care Organizations
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Q1) Westwood College is a small private college while neighboring Bridgetown University is a public institution.How is each to report its investments? \(\quad \)\(\quad \)Westwood\(\quad \)\(\quad \)\(\quad \)\(\quad \) Bridgetown
A)?Lower of cost or market\(\quad \) Fair value
B)?Fair value \(\quad \)\(\quad \)\(\quad \)\(\quad \)\(\quad \)\(\quad \)Amortized cost
C)?Lower of cost or market \(\quad \)Lower of cost or market
D)?Fair value \(\quad \)\(\quad \)\(\quad \)\(\quad \)\(\quad \)\(\quad \)Fair value
Q2) With the adoption of GASB statement #35 in 1999, governmental health care organizations are required to report their activities in a manner more like a(n):
A)general fund
B)special revenue fund
C)enterprise fund
D)fiduciary fund
Q3) Under capitation agreements with HMO's, hospitals receive fees based upon diagnoses.
A)True
B)False
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Chapter 20: Estates and Trusts: Their Nature and the
Accountants Role
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Q1) Which of the following is not an example of income in an estate?
A)Business profits.
B)Gain or loss on disposition or transfer of estate principal.
C)Rents collected or accrued.
D)Interest on monies lent.
Q2) Assets are included in the estate at their fair value on the date of death or on an alternate valuation date, if elected.
A)True
B)False
Q3) In an intestate distribution, personal property is distributed
A)under the laws of the state where the property is located.
B)under the laws of the state in which the decedent was domiciled.
C)directly to the devisee.
D)directly to the legatee.
Q4) Define what makes up the corpus or principal of an estate and list several examples.Also, list the potential claims or deductions from the principal.
Q5) Adequate estate planning is critical for an individual or family with a sizable net worth.List the goals of estate planning for large, more complex estates.
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Chapter 21: Debt Restructuring, Corporate Reorganizations, and Liquidations
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Q1) The dividend to general unsecured creditors is not a return of equity to shareholders, but the ratio of the net proceeds available to unsecured creditors without priority divided by the total claims of unsecured creditors without priority.
A)True
B)False
Q2) Which of the following is not true of a company operating as a "debtor-in-possession' after a chapter 11 reorganization plan is approved by the bankruptcy court?
A)Provisions are binding on all creditors and security holders, whether or not they accepted the plan.
B)Property is vested in the debtor company is free of all claims, except as stipulated under the plan.
C)If the reorganization is not accomplishing its objective, a request for modification or conversion to a chapter 7 liquidation may be submitted to the court.
D)If the plan contained the provision to pay accounts payable at $.50 on $1.00, and the company's cash flow is better than expected, the amount paid could be increased.
Q3) Describe the duties of the trustee in a Chapter 7 liquidation.
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Chapter 22: Derivatives and Related Accounting Issues
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Q1) On August 9, Jacobs Company buys 25 contracts on Nymex to receive December delivery of Brent Crude Oil.Each contract is in units of 1,000 bbls at a futures price of $24.85 per bbl.The initial margin on the contract is set at $25,000, with a maintenance margin of $19,000.The futures prices are as follows:
?
?
\[\begin{array} { r r r }
\text { Aug. } 9 & \text { Aug. } 10 & \text { Aug. } 11 \\
\$ 24.85 & \$ 24.63 & \$ 24.56 \end{array}\] Required:
?
a.Journalize the entries for Jacobs Company for the first three days of the contract.? ?
b.Why are forward prices discounted and future prices are not discounted?
Q2) A hedge of a forecasted transaction is a cash flow hedge.
A)True
B)False
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Chapter 23: Equity Method for Unconsolidated Investments
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Q1) Per the FASB, all but the following are characteristics of an influential investment:
A)Representation on the board of directors.
B)A significant portion of the stock is owned (perhaps 45%), with other ownership interests being widely scattered.
C)Technological dependency.
D)Material intercompany transactions.
Q2) On January 1, 20X1, Company P purchased a 30% interest in the Company S for $345,000.At that time, Company S had stockholders' equity of $1,000,000.Any excess cost over book value was attributed to a patent with a 15-year life.During 20X1, Company S earned $60,000 and paid dividends of $15,000.What is the balance in the investment account on December 31, 20X1, using the sophisticated equity method?
A)$363,000
B)$360,000
C)$355,500
D)$349,500
Q3) Land is depreciated typically on a ten-year life.
A)True
B)False
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Chapter 24: Variable Interest Entities
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Q1) The entity having control of a VIE is referred to as the parent company.
A)True
B)False
Q2) The primary bene ciary has control of the variable interest entity (VIE) based on its power to control the activities of the VIE and the obligation to absorb losses and receive bene ts from the VIE.
A)True
B)False
Q3) The accounts of the VIE are adjusted to fair value on the date control is achieved.
A)True
B)False
Q4) The consolidation process for VIE's includes the elimination of all inter-entity transactions as would be the case for control based on stock ownership
A)True
B)False
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