International Accounting Test: Trivia Quiz

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International Accounting Test: Trivia Quiz - Quiz

International accounting test: trivia quiz. Almost every business has an accounting function and this is why there are international standards on how certified accountants are expected to prepare statements no matter where they are. Do you know how to apply said standards in everyday work? This quiz will help you refresh your understanding. How about you give it a shot and see how much more practice you might need.


Questions and Answers
  • 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 $0.352 February 1, 20x2 $0.344 The 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. 
    Amazing Corporation, a U.S. enterprise, sold product to a customer in Wales on October 1, 20x1 for £100,000 with payment required on April 1, 20x1. Relevant exchange rates are:                                                Spot Rate           Forward Rate (to 4/1/x2)October 1, 20x1                     $1.87                    $1.85December 31, 20x1                   $1.85                 $1.84April 1, 20x2                           $1.90The discount factor corresponding to the company's incremental borrowing rate for 6 months is 0.95.Assume that Amazing Corporation enters a forward contract on October 1, 20x1 to sell £100,000 six months hence, on April 1, 20x2. How should Amazing Corporation report the forward contract on its December 31, 20x1 financial statements? 
    • 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

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