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International Acct Test 2

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  • 1. 
    What is a foreign currency transaction? 
    • A. 

      It is another name for an international transaction.

    • B. 

      It is a transaction that involves payment at a date sometime in the future.

    • C. 

      It is a business deal denominated in a currency other than a company's domestic currency.

    • D. 

      It is an economic event measured in a currency other than U.S. dollars.

  • 2. 
    Under U.S. GAAP, what is the proper treatment of unrealized foreign exchange losses? 
    • A. 

      They should be deferred on the Balance Sheet until the cash is paid.

    • B. 

      They should not be recognized until cash is received to complete the transaction.

    • C. 

      They should be recorded on the Income Statement in the period the exchange rate changes.

    • D. 

      They should be deferred on the Balance Sheet until an offsetting foreign exchange gain is realized.

  • 3. 
    What is the primary difference between a cash flow hedge and a fair value hedge? 
    • A. 

      The fair value hedge must completely offset the variability in the cash flow from the foreign currency receivable or payable.

    • B. 

      The cash flow hedge can only be used to offset potential foreign currency losses on accounts receivable.

    • C. 

      The cash flow hedge must completely offset the variability in cash flow from the foreign currency receivable or payable.

    • D. 

      The fair value hedge can only be used to offset the variability in cash flow from long-term fixed assets related to foreign currency fluctuations.

  • 4. 
    What is a "foreign exchange rate?" 
    • A. 

      The price to buy a foreign currency

    • B. 

      The price to buy foreign goods

    • C. 

      The difference between the price of goods in a foreign currency and the price in a domestic currency.

    • D. 

      The cost to hold all monetary assets in a single currency

  • 5. 
    According to the World Trade Organization, what was the size of international trade in 2003? 
    • A. 

      $7,000,000,000 (7 billion dollars)

    • B. 

      $70,000,000,000 (70 billion dollars)

    • C. 

      $37,000,000,000 (37 billion dollars)

    • D. 

      $7,000,000,000,000 (7 trillion dollars)

  • 6. 
    What is the requirement for reporting derivatives under international accounting standards and U.S. GAAP? 
    • A. 

      They may be shown on the balance sheet or they may be treated as off-balance sheet investments.

    • B. 

      They must be shown on the balance sheet at fair value.

    • C. 

      They must be shown on the balance sheet at historical cost.

    • D. 

      They may be shown on the balance sheet at historical cost or at net realizable value.

  • 7. 
    What was the effect of introducing the Euro with respect to hedging? 
    • A. 

      Euro-zone trading partners no longer need to hedge each other's currencies.

    • B. 

      Accounts receivable from sales to a customer in one Euro-zone country acts as a natural hedge against accounts payable to a supplier in another Euro-zone country for companies outside the Euro-zone.

    • C. 

      There are fewer currencies to hedge.

    • D. 

      All of the above.

  • 8. 
     On November 1, 20x1 Zamfir Company, a U.S. corporation, purchased minerals from a Russian company for 2,000,000 rubles, payable in 3 months. The relevant exchange rates between the U.S. and Russian currencies are given:                                         SPOT RATE          FORWARD RATE November 1, 20x1               $0.348                       $0.348 December 31, 20x1              $0.359                      $0.352February 1, 20x2                   $0.344The company's incremental borrowing rate provides a discount rate of 0.975 for three months. If Zamfir does not attempt to hedge this transaction, what is the gain or loss that should be shown on the company's December 31, 20x1 financial statements? 
    • A. 

      $22,000 loss

    • B. 

      $21,450 loss

    • C. 

      $8,000 gain

    • D. 

      $7,800 gain

  • 9. 
    Which of the following statements is true about the Euro? 
    • A. 

      It is the currency used by all countries in the European Union.

    • B. 

      It is pegged to the U.S. dollar.

    • C. 

      It is the currency required to be used in financial reporting under international accounting standards.

    • D. 

      None of the statements above is true.

  • 10. 
    Why is the accrual method of accounting for unrealized foreign exchange gains sometimes criticized? 
    • A. 

      Foreign exchange gains almost never occur, so there is no reason to have an accounting standard for it.

    • B. 

      It violates the principle of conservatism.

    • C. 

      It is not objective.

    • D. 

      There is no reliable method for measuring unrealized foreign exchange gains.

  • 11. 
    On December 1, 20x1 Pimlico made sales to a customer in India and recorded Accounts Receivable of 10,000,000 rupees. The customer has until March 1, 20x2 to pay. On December 1, 20x1, Pimlico paid $500 for a put option to sell rupees at a strike price of $2.30 per 100 rupees on March 1, 20x2, which was the spot rate on December 1, 20x1. On December 31, 20x1, the spot rate was $2.80 per 100 rupees and the option premium was $0.004 per 100 rupees. If the spot rate on March 1, 20x2 was $2.45 per 100 rupees, what is the foreign currency exchange gain or loss that should be recorded that day? 
    • A. 

      $15,000 gain

    • B. 

      $15,000 loss

    • C. 

      $35,000 gain

    • D. 

      $35,000 loss

  • 12. 
    What is a "strike price?" 
    • A. 

      The exchange rate that is used to buy a foreign currency today.

    • B. 

      The price that will be paid for goods in a forward contract.

    • C. 

      The exchange rate that will be used if a foreign currency option is executed.

    • D. 

      The difference between the wholesale rate and the retail rate for foreign currency exchange.

  • 13. 
    What is "asset exposure" to foreign exchange risk? 
    • A. 

      The possibility that an asset denominated in U.S. dollars will decline in value because of changes in the foreign exchange rate.

    • B. 

      The possibility that an asset denominated in a foreign currency will change in value because of a change in the foreign exchange rate.

    • C. 

      The loss resulting from an import purchase when a foreign currency appreciates.

    • D. 

      The loss resulting from an import purchase when a foreign currency depreciates.

  • 14. 
    What information is needed to determine the fair value of a foreign currency forward contract? 
    • A. 

      The forward rate at the date the contract was entered.

    • B. 

      The current forward rate for a contract that matures on the same dates as the forward contract that was entered into.

    • C. 

      A discount rate to determine the present value of the contract.

    • D. 

      All of the above information is needed.

  • 15. 
    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.

  • 16. 
    The number of Japanese yen (¥) required today to buy one U.S. dollar ($) today is called: 
    • A. 

      The spot rate

    • B. 

      The exact rate

    • C. 

      The forward rate

    • D. 

      The retail rate

  • 17. 
    Under U.S. GAAP, 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.

  • 18. 
    • A. 

      Asset $1,950

    • B. 

      Liability $1,950

    • C. 

      Asset $1,000

    • D. 

      Asset $950

  • 19. 
    What term is used to describe the circumstances under which Amazing Corporation is entering the forward contract? 
    • A. 

      Hedge of an unrecognized foreign currency firm commitment

    • B. 

      Hedge of a recognized foreign-currency-denominated asset

    • C. 

      Hedge of a forecast foreign-currency-denominated transaction

    • D. 

      Hedge of net investment in foreign operations

  • 20. 
    On May 1, 20x1, Usstar purchased a put option to sell £50,000 on April 30, 20x2 at a strike price equal to $2, which was the spot rate on May 1, 20x1. Usstar paid a premium of $0.01 per pound. How should the option be recorded on May 1, 20x1? 
    • A. 

      Debit FOREIGN CURRENCY OPTION for $100,500

    • B. 

      Credit FOREIGN CURRENCY OPTION for $100,500

    • C. 

      Debit FOREIGN CURRENCY OPTION for $500

    • D. 

      Debit HEDGE EXPENSE for $500

  • 21. 
    Under both the temporal method and the current rate method, what exchange rate should be used to translate a foreign subsidiary's dividends into parent company currency? 
    • A. 

      Current rate

    • B. 

      Historical rate

    • C. 

      Average rate

    • D. 

      Any of the above methods may be used under both the temporal and current method.

  • 22. 
    Which of the following statements is true about methods for translating foreign currency financial statements around the world? 
    • A. 

      Standards of the IASB and U.S. GAAP are generally consistent for translating foreign currency financial statements.

    • B. 

      Some countries have no rules for translating foreign currency financial statements.

    • C. 

      Significant differences exist among some countries in the approach taken for translating foreign currency financial statements.

    • D. 

      All of the statements are true.

  • 23. 
    When the current rate method is used, the sign (+ or -) of the translation adjustment is the result of: 
    • A. 

      Appreciation or depreciation of the foreign currency

    • B. 

      The nature of the balance sheet exposure

    • C. 

      Both (A) and (B)

    • D. 

      None of the above

  • 24. 
    Which items in the balance sheet are subject to accounting exposure? 
    • A. 

      Only assets

    • B. 

      Only liabilities and owners' equity

    • C. 

      All accounts translated at historical exchange rates

    • D. 

      All accounts translated at current exchange rates

  • 25. 
    Under SFAS 52, when the current rate method is used, how are translation adjustments treated in the consolidated financial statements? 
    • A. 

      As gains or losses on the current period consolidated Income Statement

    • B. 

      As prior period adjustments to retained earnings of the parent

    • C. 

      As part of other comprehensive income on the consolidated balance sheet

    • D. 

      None of the above because the current rate method is not allowed under SFAS 52

  • 26. 
    What is meant by the "translation" of foreign currency financial statements? 
    • A. 

      Converting financial statements prepared under foreign GAAP into domestic GAAP

    • B. 

      Converting financial statements of a foreign currency into a domestic currency.

    • C. 

      Converting the language used in financial statements from foreign to domestic.

    • D. 

      Converting historic cost financial statements into current cost financial statements.

  • 27. 
    Companies must choose between which exchange rates for consolidating foreign subsidiaries? 
    • A. 

      Spot rate and forward rate

    • B. 

      Spot rate and current rate

    • C. 

      Current rate and historical rate

    • D. 

      Domestic rate and international rate

  • 28. 
    Under the temporal method of consolidating foreign currency financial statements, what exchange rate should be used for translating the depreciation expense recorded by a subsidiary? 
    • A. 

      Average rate

    • B. 

      Current rate

    • C. 

      Historical rate

    • D. 

      Forward rate

  • 29. 
    Which of the following methods for translating foreign currency financial statements attempts to produce consolidated financial statements as if a subsidiary had actually used the parent company's currency for all its transactions? 
    • A. 

      Current/Noncurrent method

    • B. 

      Monetary/Nonmonetary method

    • C. 

      Current rate method

    • D. 

      Temporal method

  • 30. 
    Which of the following methods for translating foreign currency financial statements is required under IAS 21? 
    • A. 

      Current rate method

    • B. 

      Temporal method

    • C. 

      Current rate method or temporal method, depending on the functional currency of the subsidiary

    • D. 

      Current rate method or temporal method may be chosen by management of the parent

  • 31. 
    A Danish subsidiary of a U.S. corporation recorded a building it purchased in 2002 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 2002.

    • C. 

      The building is worth $13,200,000 to the U.S. parent today.

    • D. 

      None of the above.

  • 32. 
    Under the temporal method of translating foreign currency financial statements, what exchange rate should be used for cost of goods sold? 
    • A. 

      Spot rate at the end of the year

    • B. 

      Average rate during the year

    • C. 

      Spot rate mid-year

    • D. 

      There is no single rate because beginning and ending inventory must be converted at different exchange rates than purchases.

  • 33. 
    What is the "disappearing plant" problem that is addressed by SFAS 52? 
    • A. 

      This refers to the accelerated depreciation methods that are popular for fixed asset valuation.

    • B. 

      High inflation can result in extreme decreases in the reported amounts for foreign fixed assets.

    • C. 

      Cheap foreign currency results in U.S. companies moving factory operations offshore.

    • D. 

      Investment in fixed assets was not being reported on foreign subsidiary financial statements.

  • 34. 
    Under the current rate method of translating foreign currency financial statements, what is the amount of the balance sheet exposure? 
    • A. 

      It is equal to the amount of assets recorded by the subsidiary.

    • B. 

      It is equal to the amount of liabilities recorded by the subsidiary.

    • C. 

      It is equal to total assets minus total liabilities.

    • D. 

      It is equal to total assets plus total liabilities.

  • 35. 
    According to SFAS 52, which of the following conditions would indicate that a foreign subsidiary's functional currency is the foreign currency? 
    • A. 

      Sales price is not affected by changes in exchange rate in the short run.

    • B. 

      High volume of intercompany transactions

    • C. 

      Sales in the local market are not significant.

    • D. 

      Most of the subsidiary's financing comes from the parent.

  • 36. 
    Which of the following method uses the current exchange rate to consolidate all accounts of a foreign subsidiary into the financial statements of its parent? 
    • A. 

      Current rate method

    • B. 

      Temporal method

    • C. 

      Current/noncurrent method

    • D. 

      None of the above.

  • 37. 
    Which of the following statements is true about the translation of foreign currency financial statements globally? 
    • A. 

      There is very little difference in translation methods among countries globally because most countries follow IASB rules.

    • B. 

      Most industrialized countries follow U.S. GAAP as it pertains to translating foreign currency financial statements.

    • C. 

      All members of the G8 (U.S., UK, Italy, Germany, France, Canada, Russia, and Japan) use the temporal method or current rate method of translating foreign currency financial statements.

    • D. 

      None of the above statements is true.

  • 38. 
    Under SFAS 52, what group is responsible for determining the functional currency of a foreign subsidiary? 
    • A. 

      Financial Accounting Standards Board

    • B. 

      International Accounting Standards Board

    • C. 

      Securities and Exchange Commission

    • D. 

      Company management

  • 39. 
    Placo Ltd., a Scottish subsidiary of Limko Inc, a U.S. company, showed cost of goods sold on its income statement for the year ended December 31, 2004.Inventory, 1/1/04                  100,000Purchases                             900,000COG Available for Sale     1,000,000Inventory, 12/31/04              200,000COGS                                 800,000                                       Exchange rates/$1December 31, 2004           $0.522December 31, 2003           $0.5602004 average                     $0.547 What amount should be used to consolidate Placo's cost of goods sold into Limko's income statement under the temporal method? 
    • A. 

      $443,900

    • B. 

      $437,600

    • C. 

      $432,500

    • D. 

      $448,000

  • 40. 
    How does SFAS 52 define a "highly inflationary economy?" 
    • A. 

      Inflation rate over 50% annually

    • B. 

      Inflation rate over 10% annually

    • C. 

      Cumulative three-year inflation over 26%

    • D. 

      Cumulative three-year inflation over 100%

  • 41. 
    Under U.S. GAAP, what is the segment reporting requirement under SFAS 131?
    • A. 

      Both geographic and line of business segments must be reported separately.

    • B. 

      Only operating segment information must be reported separately.

    • C. 

      Only geographic segments must be reported separately from the consolidated reports.

    • D. 

      Segments that represent more than 10% of total revenues must be reported separately.

  • 42. 
    What term is used to refer to presenting the financial statements for a group of enterprises as if it was a single entity? 
    • A. 

      Harmonization

    • B. 

      Translation

    • C. 

      Consolidation

    • D. 

      Transformation

  • 43. 
    Which of the following is potentially a problem associated with historical cost-based financial statements in periods of inflation? 
    • A. 

      Asset understatement

    • B. 

      Overpayment of income taxes

    • C. 

      Overstated income

    • D. 

      All of the above are potential problems.

  • 44. 
    According to IAS 27, how can effective control be achieved without owning more than 50% of another companies' voting shares? 
    • A. 

      Representation on the company's board of directors

    • B. 

      Being the primary entity exercising voting rights

    • C. 

      Through a contract between the entities

    • D. 

      All of the above may result in control of one corporation over another

  • 45. 
    What issue of reporting effects of changing prices is addressed by IAS 29, issued by the International Accounting Standards Board in 1989? 
    • A. 

      Choice between current replacement cost and general purchasing power method

    • B. 

      Making inflation-adjusted reporting optional or required

    • C. 

      Specifying the European Central Bank as the official source of inflation rates in the European Union.

    • D. 

      Mandating inflation-adjustment for primary financial statements of companies in hyperinflationary economies.

  • 46. 
    In addition to requiring separate reporting for operating segments, SFAS 131 requires companies to report: 
    • A. 

      Operating income for each country in which a material amount of revenue is derived.

    • B. 

      Revenues and long-lived assets for all foreign countries where it has assets or derives revenue

    • C. 

      Revenues and long-lived assets for each country that constitutes 10% of more of the combined revenues or assets

    • D. 

      Operating income adjusted for inflation for each country where it has significant operations.

  • 47. 
    In January 2003, the FASB released Interpretation 46, "Consolidation of Variable Interest Entities," which: 
    • A. 

      Re-emphasized the need for 50% stock ownership to exert effective control

    • B. 

      Expanded U.S. GAAP to consider effective control rather than legal control for consolidated financial statements

    • C. 

      Took a "form-over-substance" approach to define control in determining requirements for consolidated financial statements

    • D. 

      Defined effective control as ownership of 30% or more of another entity's voting shares

  • 48. 
    How is accounting for a pooling of interests different from a purchase when business entities combine
    • A. 

      Assets and liabilities are not revalued when the pooling of interests is used.

    • B. 

      Goodwill arises only when the pooling of interests method is used for business combinations.

    • C. 

      Pooling of interests is used for international consolidations but never for domestic consolidations.

    • D. 

      The purchase method is used only when less than 100% of an entity's voting shares are acquired.

  • 49. 
    Why do financial analysts and other readers of financial statements want segmented information
    • A. 

      Consolidation obscures facts that may be important for evaluating financial statements.

    • B. 

      More information is always preferred to less information.

    • C. 

      To ensure that illegal business combinations are not taking place.

    • D. 

      Models for economic forecasting have not been developed using consolidated financial statement information.

  • 50. 
    International accounting standards (IAS 14) requires publicly traded companies to report segmented financial information along: 
    • A. 

      Geographic lines only

    • B. 

      Business lines only

    • C. 

      Both geographic and business lines

    • D. 

      Geographic or business lines

  • 51. 
    Which of the following are reasons to report segmented accounting information for multinational enterprises? 
    • A. 

      There are different risks in different parts of the world that a reader may need to know about.

    • B. 

      Different lines of business have different levels of risk that may affect business success.

    • C. 

      Growth opportunities differ from one nation to another which could affect share value.

    • D. 

      All of the above are reasons for segmented reporting.

  • 52. 
    Since 2001, which method of accounting for a business combination is required under U.S. GAAP? 
    • A. 

      Pooling

    • B. 

      Purchase

    • C. 

      Both purchase and pooling are allowed.

    • D. 

      Purchase is required for transnational combinations, but pooling is allowed for domestic combinations.

  • 53. 
    IFRS 3, issued in 2004, eliminated the use of which concept for reporting assets and liabilities of an acquired company on the parent company's consolidated financial statements? 
    • A. 

      Parent company concept

    • B. 

      Economic concept

    • C. 

      Entity concept

    • D. 

      All of the above

  • 54. 
    Which of the following countries requires companies to use current replacement cost accounting to prepare primary financial statements? 
    • A. 

      The Netherlands

    • B. 

      Mexico

    • C. 

      Brazil

    • D. 

      None of the above

  • 55. 
    How do multinational corporations combine operations? 
    • A. 

      The acquired firm is dissolved and is merged into the acquiring company.

    • B. 

      One company acquires a majority of shares of another company, but both entities continue to exist.

    • C. 

      Two or more entities dissolve their legal status and merge to create a new corporation.

    • D. 

      All of the above.

  • 56. 
    A representative market basket of products cost $250 at the beginning of the year, and the same collection of products costs $280 at the end of the year. What is the annual rate of inflation? 
    • A. 

      10.7%

    • B. 

      12%

    • C. 

      112%

    • D. 

      -10.7%

  • 57. 
    According to IAS 14, how should a company distinguish between its primary and secondary formats for reporting segment information? 
    • A. 

      The primary format relates to segments that have the greatest proportion of total assets.

    • B. 

      The primary segments are those that have 10% or more of total revenues.

    • C. 

      The primary format is the one most closely related to the risks and returns of the business.

    • D. 

      The primary format is the one most easily accounted for by the enterprise.

  • 58. 
    Which method of dealing with inflation in financial reporting reflects current replacement cost of specific assets? 
    • A. 

      Current replacement cost method

    • B. 

      General purchasing power method

    • C. 

      Temporal method

    • D. 

      Current rate method

  • 59. 
    Holding monetary assets during a period of inflation results in: 
    • A. 

      Purchasing power gains

    • B. 

      Purchasing power losses

    • C. 

      Transaction gains

    • D. 

      Translation losses

  • 60. 
    Under IAS 14, which criteria must be met by all segments that are considered reportable business segments? 
    • A. 

      The segment must have revenue that is one-tenth or more of combined revenue.

    • B. 

      The segment must have profit that is 10% or more of combined profit of all segments with profit.

    • C. 

      The segment must have revenue that is more than half from external sources.

    • D. 

      The segment must have assets that are 10% or more of combined segment assets.

  • 61. 
    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

  • 62. 
    Which of the following statements is true about convenience translations? 
    • A. 

      Translation eliminates the problems associated with comparing financial statements in the same language.

    • B. 

      Convenience translation means that a company converts both the language and the currency of its financial statements for the convenience of potential investors.

    • C. 

      Convenience translations require reconciliation to U.S. GAAP, U.S. format, as well as conversion to English.

    • D. 

      None of the above statements is true.

  • 63. 
    Why should financial analysts endorse the adoption of IFRS worldwide? 
    • A. 

      It would eliminate differences in the financial statements of international companies.

    • B. 

      It would increase the comparability of financial statements across countries.

    • C. 

      It would increase the demand for the services of international financial analysts.

    • D. 

      The services of financial analysts would become more valuable to investors.

  • 64. 
    Dynasty Industries reported total liabilities of ¥9,000,000 and total assets of ¥12,000,000. The current exchange rate is ¥120 = $1. What is Dynasty Industries' debt ratio? 
    • A. 

      ¥0.75

    • B. 

      133%

    • C. 

      75%

    • D. 

      6.25%

  • 65. 
    Which of the following is a limitation of using commercial databases to access foreign company financial statements? 
    • A. 

      Data may be lost when a standard financial statement format is imposed on foreign statements.

    • B. 

      Errors may occur during data entry.

    • C. 

      Notes to the financial statements may not be included, or only partially included.

    • D. 

      All of the above are limitations.

  • 66. 
    Which of the following is a likely to affect an analyst's ability to make meaningful comparisons of financial statement ratios for companies in different countries? 
    • A. 

      Accounting diversity

    • B. 

      Varying business traditions

    • C. 

      Unique terminology

    • D. 

      All of the above

  • 67. 
    Which of the following has the least frequent reporting requirements for publicly traded corporations? 
    • A. 

      United States of America

    • B. 

      United Kingdom

    • C. 

      European Union

    • D. 

      Canada

  • 68. 
    Dynasty Industries reported total liabilities of ¥9,000,000 and total assets of ¥12,000,000. If the exchange rate changes to ¥110 = $1, what will be the change in the debt ratio assuming the account balances remain constant
    • A. 

      Decrease 8.3%

    • B. 

      Increase 8.3%

    • C. 

      Decrease 9.1%

    • D. 

      No change

  • 69. 
    Why is investing in foreign companies an effective way to diversity an individual's investment portfolio? 
    • A. 

      Foreign economies are stronger than the U.S. economy.

    • B. 

      Foreign stocks are less risky than the stocks of U.S. corporations.

    • C. 

      Stock returns of companies in foreign companies are highly correlated with stock returns of U.S. companies.

    • D. 

      Returns on foreign company stocks do not always change in the same direction as returns on U.S. stocks.

  • 70. 
    Which of the following is a reason for analyzing the financial statements of foreign corporations? 
    • A. 

      Making credit decisions about foreign customers

    • B. 

      Evaluating international business combinations

    • C. 

      Diversifying an investment portfolio

    • D. 

      All of the above are reasons for analyzing foreign financial statements.

  • 71. 
    Timeliness of financial statements varies across nations. Which of the following countries has financial statements issued closest to year end (on average)?
    • A. 

      Japan

    • B. 

      Germany

    • C. 

      Canada

    • D. 

      Italy

  • 72. 
    For U.S. companies whose shares are publicly traded on U.S. stock exchanges, how long after year-end must annual reports be filed with the Securities and Exchange Commission (SEC)? 
    • A. 

      6 months

    • B. 

      90 days

    • C. 

      60 days

    • D. 

      30 days

  • 73. 
    What is OIBD? 
    • A. 

      This is the Organization of International Boards of Directors, which is attempting to harmonize accounting standards.

    • B. 

      It stands for "operating income before depreciation," which some analysts use to remove the effect of international accounting standard diversity.

    • C. 

      It is the Organization of International Bond Dealers, whose financial analysts developed EBITDA.

    • D. 

      None of the above.

  • 74. 
    In order to appropriately analyze the trends in foreign financial statement data, which exchange rates should be used? 
    • A. 

      Historical exchange rates

    • B. 

      Beginning of year exchange rates

    • C. 

      Current exchange rates

    • D. 

      Average exchange rates

  • 75. 
    Imperial Chemical Industries, a U.K. corporation, recorded interest incurred in constructing fixed assets as an expense of £128,000,000. When reconciling ICI's financial statements to U.S. GAAP, what should be done with this interest? 
    • A. 

      It should be subtracted from the fixed asset account balance

    • B. 

      It should be added to the fixed asset account balance.

    • C. 

      £128,000,000 should be deducted from retained earnings.

    • D. 

      This amount should be charged to accumulated depreciation.

  • 76. 
    If an analyst read in an annual report that a company in England experienced "a 12% increase in turnover," how should it be interpreted? 
    • A. 

      Sales divided by total assets was 12%.

    • B. 

      Sales increased by 12% over a prior period.

    • C. 

      Sales divided by average inventory was 12%.

    • D. 

      Inventory was 12% larger this period than the prior period.

  • 77. 
    What is an advantage of using ratio analysis in comparing financial statements from different countries?
    • A. 

      Ratios are expressed as percentages, making currency differences irrelevant to the analysis.

    • B. 

      Ratios highlight the holding gains or losses related to currency translation.

    • C. 

      Purchasing power gains and losses from currency translation show up clearly in ratio analysis.

    • D. 

      Comparing business ratios across countries removes the effect of economic conditions and business culture.

  • 78. 
    Footnote disclosures in foreign financial statements are particularly helpful in: 
    • A. 

      Overcoming differences in statement format among countries

    • B. 

      Reconciling statements from one country's GAAP to another country's GAAP

    • C. 

      Learning relevant information not required to be presented in the accounts

    • D. 

      All of the above

  • 79. 
    What is the first step that should be taken to restate foreign financial statements to conform to U.S. GAAP
    • A. 

      Convert the foreign currency amounts to U.S. dollars.

    • B. 

      Restate historical costs to current cost basis.

    • C. 

      Re-order foreign financial statements to U.S. format.

    • D. 

      Determine the amount of foreign exchange gains or losses.

  • 80. 
    How would a company decide which foreign languages will be used to present its financial statements? 
    • A. 

      Determine which language is closest to the local language so that translation is less costly.

    • B. 

      Choose the language based on which countries provide the greatest potential source of funds.

    • C. 

      Follow the language requirements of its local accounting regulatory agency.

    • D. 

      Select the language of the most populous country in its region of the world.