Chapter 11 Exam 3
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13. What international organization currently issues IFRS?
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A) IASB.
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B) IASC.
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C) IOSCO.
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D) FASB.
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E) EU.
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5. In countries of Latin America:
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A) Accounting practice currently emphasizes political colonialism.
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B) Accounting standards previously emphasized accounting highly inflationary economies.
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C) Banks are the primary source of financing for companies.
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D) Accounting standards focus are based on recent market economy reforms.
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E) Accounting information is prepared to meet the needs of governmental planners.
Correct Answer
A. B) Accounting standards previously emphasized accounting highly inflationary economies.Explanation
The correct answer is B) Accounting standards previously emphasized accounting highly inflationary economies. This means that in the past, accounting standards in Latin American countries focused on addressing the challenges posed by highly inflationary economies. This could include issues such as adjusting financial statements for inflation, dealing with the impact of inflation on inventory valuation, and ensuring that financial information is reliable and comparable despite high inflation rates.Rate this question:
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3. All of the following are influences on the development of a country’s financial reporting practices except:
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A) The country’s legal system.
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B) The country’s political system.
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C) The taxation system.
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D) The country’s cultural system.
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E) The country’s level of inflation.
Correct Answer
A. D) The country’s cultural system.Explanation
The country's cultural system is not an influence on the development of a country's financial reporting practices. Financial reporting practices are primarily influenced by the country's legal system, political system, taxation system, and level of inflation. The cultural system, which includes beliefs, values, and traditions, may indirectly impact financial reporting practices through its influence on the legal and political systems, but it is not a direct determinant.Rate this question:
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8. The types of differences that exist between IFRS and U.S. GAAP would not generally include:
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A) Presentation differences.
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B) Measurement differences.
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C) Disclosure differences.
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D) Comparability differences.
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E) Classification differences.
Correct Answer
A. D) Comparability differences.Explanation
The types of differences between IFRS and U.S. GAAP include presentation differences, measurement differences, disclosure differences, and classification differences. Comparability differences are not typically considered as a type of difference between the two accounting standards.Rate this question:
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- 5.
14. IFRS for SMEs are primarily designed to meet the needs of:
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A) Small Manufacturing Enterprises.
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B) Governmental entities.
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C) Companies whose shares of stock are not publicly traded.
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D) Not-for-profit organizations.
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E) Special Model Entities.
Correct Answer
A. C) Companies whose shares of stock are not publicly traded.Explanation
IFRS for SMEs (International Financial Reporting Standards for Small and Medium-sized Entities) are specifically designed to meet the needs of companies whose shares of stock are not publicly traded. This means that the standards are tailored for privately held companies that do not have publicly traded shares on stock exchanges. These companies may have different reporting requirements and financial needs compared to larger, publicly traded companies. Therefore, the IFRS for SMEs provide a simplified and more relevant set of accounting standards for these specific types of entities.Rate this question:
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- 6.
17- Bugs, Inc., a wholly owned subsidiary of the U.S.-based company, Pillows Ltd., was notified of a loss contingency with an estimated cost ranging between $50,000 and $150,000. Bugs, Inc. hired an expert appraiser who assessed that all possible dollar amounts of liability in this range are equally likely. Management of Bugs, Inc. has estimated that there is a 60 percent chance that this contingency will result in an actual loss. According to U.S. GAAP, what is the amount recognized by Bugs, Inc. as a provision for loss contingency?
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A) No amount will be recorded but an amount will be disclosed in the notes to the financial statements.
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B) $50,000
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C) $60,000
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D) $100,000
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E) $150,000
Correct Answer
A. A) No amount will be recorded but an amount will be disclosed in the notes to the financial statements.Explanation
According to U.S. GAAP, a provision for loss contingency should only be recognized if it is probable that an actual loss has occurred and the amount can be reasonably estimated. In this case, the estimated cost of the loss contingency ranges between $50,000 and $150,000, and there is a 60 percent chance that it will result in an actual loss. However, since the expert appraiser assessed that all possible dollar amounts of liability in this range are equally likely, it cannot be reasonably estimated. Therefore, no amount will be recorded, but it will be disclosed in the notes to the financial statements to provide transparency to the users of the financial statements.Rate this question:
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1. In the United States, foreign companies filing annual reports with the SEC that are not prepared in accordance with U.S. GAAP must:
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A) Present financial statements that comply with international GAAP.
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B) Conform with U.S. GAAP or present a reconciliation to U.S. GAAP.
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C) Have a demonstrated need for capital to be used for operations in the U.S.
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D) Use the U.S. dollar as their reporting currency.
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E) Either use IFRS, or otherwise use foreign GAAP with a reconciliation to U.S. GAAP.
Correct Answer
A. E) Either use IFRS, or otherwise use foreign GAAP with a reconciliation to U.S. GAAP.Explanation
Foreign companies filing annual reports with the SEC in the United States are required to follow U.S. GAAP. However, if they are not able to prepare their financial statements in accordance with U.S. GAAP, they have two options. They can either use International Financial Reporting Standards (IFRS) or use their own country's GAAP with a reconciliation to U.S. GAAP. This allows the SEC and investors to have a clear understanding of the company's financial performance and make meaningful comparisons with other companies that follow U.S. GAAP.Rate this question:
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4. Which of the following is a pronouncement originally issued by the IASC and is not a pronouncement originally issued by the IASB?
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A) Business Combinations.
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B) First-Time Adoption of IFRS.
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C) Financial Instruments: Disclosures.
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D) Interim Financial Reporting.
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E) Operating Segments.
Correct Answer
A. D) Interim Financial Reporting. -
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2. Which of the following is not a likely step to furthering convergence of FASB and IFRS?
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A) FASB adopting an existing IASB Standard.
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B) IASB adopting an existing FASB standard.
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C) FASB and IASB issuing an identical standard.
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D) FASB working with IASB to develop a new standard.
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E) Realizing that identical standards, rather than similar standards, is not realistic.
Correct Answer
A. C) FASB and IASB issuing an identical standard.Explanation
The convergence of FASB and IFRS involves aligning the accounting standards of the two bodies to reduce differences and improve comparability. Options A, B, and D all involve collaboration and cooperation between FASB and IASB, which are steps towards convergence. Option E acknowledges the practicality of having identical standards. However, option C suggests that FASB and IASB independently issue the same standard, which does not involve collaboration or convergence.Rate this question:
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16- A foreign subsidiary of a U.S.-based company has been notified of a loss contingency with an estimated cost ranging between $220,000 and $250,000 which is probable of resulting in an actual loss. Each dollar amount within this range of cost is equally likely of being the actual outcome. According to IFRS, what is the amount recognized as a provision for loss contingency?
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A) No amount will be recorded but an amount will be disclosed in the notes to the financial statements.
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B) $110,000
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C) $220,000
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D) $235,000
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E) $250,000
Correct Answer
A. D) $235,000Explanation
220,000 + 250,000 = 470,000/ 2= 235,000Rate this question:
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- 11.
6. Which of the following is not a way for a country to use IFRS?
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A) Require foreign companies listed on that country’s stock exchange to use IFRS for consolidated financial statements.
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B) Allow foreign companies listed on that country’s stock exchange to use IFRS.
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C) Permit its domestic companies listed on that country’s stock exchange to use IFRS.
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D) Adopt IFRS as that country’s national GAAP.
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E) All of these answer choices are correct.
Correct Answer
A. E) All of these answer choices are correct.Explanation
The correct answer is E) All of these answer choices are correct. This means that all of the options listed (A, B, C, and D) are valid ways for a country to use IFRS. This implies that a country can require foreign companies listed on its stock exchange to use IFRS, allow foreign companies to use IFRS, permit domestic companies to use IFRS, and adopt IFRS as its national GAAP.Rate this question:
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7. Convergence of accounting standards would not occur by:
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A) FASB adopting an existing IASB standard.
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B) IASB adopting an existing FASB standard.
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C) IASB issuing a new standard.
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D) IASB and FASB jointly developing a new standard.
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E) IASB and FASB each issuing a similar but not identical standard.
Correct Answer
A. C) IASB issuing a new standard.Explanation
The convergence of accounting standards refers to the process of harmonizing accounting standards globally. This can be achieved through various methods such as adopting existing standards from other standard-setting bodies or jointly developing new standards. However, if the IASB simply issues a new standard without any collaboration or alignment with other standard-setting bodies like the FASB, it would not lead to convergence. Therefore, option C is the correct answer as it does not contribute to the convergence of accounting standards.Rate this question:
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10. The most relevant factor in determining the purpose of financial reporting is:
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A) The nature of the country’s financing system
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B) The country’s current economic conditions
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C) The ability to control inflation
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D) A strong equity financing system which is more conservative, minimal disclosures, and tight tax laws.
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E) A weak equity financing system which is less conservative, extensive disclosures and loose tax laws.
Correct Answer
A. A) The nature of the country’s financing systemExplanation
The most relevant factor in determining the purpose of financial reporting is the nature of the country's financing system. This is because the purpose of financial reporting is to provide information to users who make decisions based on that information. The nature of the country's financing system, such as whether it relies more on debt or equity financing, will impact the type of information that is most relevant to users. For example, in a country with a strong equity financing system, minimal disclosures and tight tax laws may be sufficient, while in a country with a weak equity financing system, extensive disclosures and loose tax laws may be necessary.Rate this question:
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11. A U.S. company has many foreign subsidiaries and is converting its consolidated financial statements from U.S. GAAP to IFRS. Which of the following items is not one of the likely accounting issues to resolve for the conversion?
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A) Measuring impairment.
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B) Classifying preferred shares of stock.
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C) Sale and leaseback gain recognition.
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D) Measuring salaries expense.
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E) Prior service cost recognition for defined benefit plans.
Correct Answer
A. D) Measuring salaries expense.Explanation
The question asks for the item that is not one of the likely accounting issues to resolve when converting consolidated financial statements from U.S. GAAP to IFRS. Measuring salaries expense is a straightforward accounting issue that is not specific to the conversion from U.S. GAAP to IFRS. The other options (measuring impairment, classifying preferred shares of stock, sale and leaseback gain recognition, and prior service cost recognition for defined benefit plans) are all potential accounting issues that may need to be addressed during the conversion process.Rate this question:
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9. Which of the following is not true about IFRS?
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A) The IASB does not have the ability to enforce proper usage of IFRS.
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B) IFRS is available to any organization or nation that wishes to use those standards.
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C) IFRS is a comprehensive set of financial reporting standards.
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D) IFRS includes only pronouncements issued by the IASB.
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E) IFRS are considered as generally accepted accounting principles.
Correct Answer
A. D) IFRS includes only pronouncements issued by the IASB.Explanation
The correct answer is D) IFRS includes only pronouncements issued by the IASB. This statement is not true because IFRS includes not only pronouncements issued by the IASB, but also other interpretations and guidance provided by various bodies authorized by the IASB.Rate this question:
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18. The most recent FASB-IASB convergence projects include:
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Leases, Research and Development, Revenue Recognition, and Fair Value Measurement.
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Leases, Revenue Recognition, Fair Value Measurement, and Joint Ventures.
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Insurance Contracts, Post-Employment Benefits, Income Taxes and Impairment
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Insurance Contracts, Income Taxes, Leases, and Revenue Recognition.
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Revenue Recognition, Leases, Insurance Contracts, and Income Taxes.
Correct Answer
A. Leases, Revenue Recognition, Fair Value Measurement, and Joint Ventures.Explanation
The most recent FASB-IASB convergence projects include Leases, Revenue Recognition, Fair Value Measurement, and Joint Ventures. This means that these are the areas where the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working together to align their standards and principles. Joint Ventures is included as one of the convergence projects, indicating that it is an area of focus for both boards in their efforts to achieve global accounting standards.Rate this question:
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19- Barrel of Oats (BOA), a U.S. company, was acquired by an international company and BOA has a transition date of January 1, 2018 for first-time adoption of IFRS. BOA has a new cereal brand that is ready to be marketed but the company has not yet received copyright approval for the brand’s logo. All costs for development of the copyright were expensed prior to IFRS January 1, 2018. BOA and its new international parent both have December 31 year-end accounting years. What should BOA do to prepare financial statements for the first time in accordance with IFRS?
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A) Debit development expense and credit copyright for the year ended December 31, 2018.
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B) Debit copyright and credit copyright expense at January 1, 2018.
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C) Debit copyright and credit research and development expense for the year ended December 31, 2017.
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D) Debit copyright and credit stockholders’ equity at January 1, 2018.
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E) Debit stockholders’ equity and credit research and development expense at January 1, 2018.
Correct Answer
A. D) Debit copyright and credit stockholders’ equity at January 1, 2018. -
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12. Foreign companies whose stock is listed on a U.S. stock exchange and using foreign GAAP other than IFRS must file their annual report with the SEC on:
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A) Form 8-A.
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B) Form 10-A.
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C) Form 16-K.
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D) Form 20-F.
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E) Form 20-K.
Correct Answer
A. D) Form 20-F.Explanation
Foreign companies whose stock is listed on a U.S. stock exchange and using foreign GAAP other than IFRS must file their annual report with the SEC on Form 20-F. This form is specifically designed for foreign private issuers to submit their annual reports to the SEC. It includes information about the company's financial statements, business operations, management, and any material changes that have occurred during the reporting period. This form allows the SEC to ensure that foreign companies are providing the necessary information to investors and maintaining transparency in the U.S. market.Rate this question:
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15. A company is preparing financial statements using IFRS for the first time for the year ended December 31, 2018. The “transition date” for reporting is
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A) December 31, 2018.
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B) December 31, 2017.
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C) January 1, 2017.
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D) January 1, 2018.
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E) January 1, 2019.
Correct Answer
A. D) January 1, 2018.Explanation
The transition date for reporting is January 1, 2018. This is because when a company adopts IFRS for the first time, it needs to present comparative financial statements for the previous year. In this case, the company is preparing financial statements for the year ended December 31, 2018, which means it needs to provide comparative financial statements for the year ended December 31, 2017. Therefore, the transition date would be January 1, 2018, as this is the beginning of the comparative period.Rate this question:
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20. Which of the following is not a problem caused by diversity in accounting practices across countries?
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A) Comparing companies in the same industry that are headquartered in different countries.
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B) Translating foreign currency balances into U.S. dollars.
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C) Converting local GAAP financial statements into U.S. GAAP for consolidation purposes.
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D) Maintaining separate accounting records in both the local and U.S. GAAP.
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E) Identifying and retaining personnel who are competent to prepare financial statements in both international and domestic accounting standards.
Correct Answer
A. B) Translating foreign currency balances into U.S. dollars.Explanation
Diversity in accounting practices across countries can create various challenges and complexities when it comes to comparing financial information. Comparing companies in the same industry that are headquartered in different countries (option A) can be difficult due to differences in accounting standards and practices. Converting local GAAP financial statements into U.S. GAAP for consolidation purposes (option C) can also be challenging. Maintaining separate accounting records in both the local and U.S. GAAP (option D) can be time-consuming and resource-intensive. Identifying and retaining personnel who are competent in both international and domestic accounting standards (option E) can be a struggle. However, translating foreign currency balances into U.S. dollars (option B) is not directly related to diversity in accounting practices and can be addressed through appropriate exchange rate conversions.Rate this question:
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