Topic 1 and Topic 2 Flashcards
(96 cards)
1
Q
three largest exporters
A
China, U.S., Germany
2
Q
three largest importers
A
U.S., China, Japan
3
Q
advantages of global accounting standards
A
Avoids GAAP conversion
Easier to evaluate foreign investment opportunities
4
Q
what gives rise to foreign exchange risk
A
Credit sales are made to foreign customers who will pay in their own currency
5
Q
foreign currency option
A
Right to sell foreign currency at a predetermined exchange rate and time
6
Q
forward contract
A
Obligation to exchange foreign currency at a future date
7
Q
objectives of international income taxation
A
Legally minimize taxes in foreign countries and home country
Maximize after-tax cash flows
8
Q
issues in evaluation of foreign operations
A
Translation from one currency to another
Inflated price paid in transfer pricing
Issues unique to foreign operations
9
Q
issues faced by internal and external auditors
A
Differences in language and culture
Differences accounting standards and auditing standards
10
Q
cross-listing
A
stock listed and traded on several foreign stock exchanges
11
Q
issue with cross-listing on foreign stock exchanges
A
Listing regulations differ for foreign companies
12
Q
independent float
A
the currency is allowed to fluctuate according to market forces
13
Q
pegged to another currency
A
the currency’s value is fixed in terms of a particular foreign currency, and the central bank will intervene to maintain the fixed value
14
Q
european monetary system
A
a common currency (the euro) is used in multiple countries. Its value floats against other world currencies
15
Q
exchange rate
A
the cost of one currency in terms of another
16
Q
spread
A
The difference between the rates at which a bank is willing to buy and sell currency
17
Q
spot rate
A
The exchange rate that is available today
18
Q
forward rate
A
The exchange rate that can be locked in today for an expected future exchange transaction
19
Q
forward contract
A
requires the purchase (or sale) of currency units at a future date at the contracted exchange rate
20
Q
options contract
A
gives the holder the option of buying (or selling) currency units at a future date at the contracted “strike” price
21
Q
put option
A
allows for the sale of foreign currency by the option holder
22
Q
call option
A
allows for the purchase of foreign currency by the option holder
23
Q
foreign trade
A
A U.S. company buys or sells goods or services to a party in another country
24
Q
journal entry for sale
A
Dr. Accounts Receivable
Cr. Sales Revenue
25
journal entry for purchase
Dr. Asset/Supplies/Inventory
Cr. A/P
26
who is the one-transaction perspective allowable for
not GAAP or IFRS
27
two-transaction approach
Account for the original sale in US Dollars at date of sale. No subsequent adjustments are required.
Changes in the U.S. dollar value of the foreign currency are accounted for as gains/losses from exchange rate fluctuations reported separately from sales in the income statement
28
Export sale, Foreign currency appreciates, gain
SAG
29
Import purchase, foreign currency appreciates, loss
PAL
30
Which of the following combinations correctly describes the relationship between foreign currency transactions, exchange rate changes, and foreign exchange gains and losses?
a. Export sale, appreciates, loss
b. import purchase, appreciates, gain
c. import purchase, depreciates, gain
d. export sale, depreciates, gain
c. import purchase, depreciates, gain
31
Gracie Corporation had a Japanese yen receivable resulting from exports to Japan and a Brazilian real payable resulting from imports from Brazil. Gracie recorded foreign exchange gains related to both its yen receivable and real payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?
a. Yen: increase, Real: increase
b. decrease, decrease
c. decrease, increase
d. increase, decrease
d. increase, decrease
32
In accounting for foreign currency transactions, which of the following approaches is used in the U.S?
One-transaction perspective, accrue foreign exchange gains and losses
One-transaction perspective, defer foreign exchange gains and losses
Two-transaction perspective, defer foreign exchange gains and losses
Two-transaction perspective, accrue foreign exchange gains and losses
Two-transaction perspective, accrue foreign exchange gains and losses
33
On October 1, 2023, Mud Company (a US company) purchased parts from Terra (a Portuguese company) with payment due on December 1, 2023. If Mud's 2023 operating income includes no foreign exchange gain or loss, the transaction could have
generated a foreign exchange loss to be reported as a separate component of stockholders' equity.
b. been denominated in U.S. dollars.
c. resulted in an extraordinary gain.
d. generated a foreign exchange gain to be reported as a deferred charge on the balance sheet.
b. been denominated in U.S. dollars
34
accounting for unrealized gains and losses
1. deferral approach
2. accrual approach (required by u.s. gaap)
35
deferral approach
Gains and losses are deferred on the balance sheet until cash is paid or received and a realized foreign exchange gain or loss is included in income when paid
36
accrual approach
Unrealized foreign exchange gains and losses are reported in net income in the period in which the exchange rate changes
37
Post, Inc. had a receivable from a foreign customer that is payable in the customer's local currency. The original receivable was posted at $120,000. On December 31, 2023, Post correctly included this receivable for 200,000 local currency in its balance sheet at $110,000. When Post collected the receivable on February 15, 2024, the U.S. dollar equivalent was $95,000. In Post's 2024 income statement, how much should it report as a foreign exchange gain or loss?
$15,000, $10,000 for 2023
38
On July 1, 2023, Houghton Company borrowed 200,000 euros from a foreign lender evidenced by an interest-bearing note due on July 1, 2024. The note is denominated in euros. The U.S. dollar equivalent of the note principal is as follows:
July 1, 2023 $195,000
December 31, 2023 (Houghton’s FYE) $220,000
July 1, 2024 $230,000
In its 2024 income statement, what amount should Houghton include as a foreign exchange gain or loss on the note?
$10,000, $25,000 2023
39
types of differences between IFRS and U.S. GAAP
Definition differences
Recognition differences
Measurement differences
Alternatives
Lack of requirements or guidance
Presentation differences
Disclosure differences
40
which standard setter is more flexible
IFRS
41
which standard-setter generally has less bright-line guidance
IFRS
42
Which standard setter is a principles-based accounting system
IFRS
43
Which standard setter is a rules-based system
GAAP
44
which standard setter provides more extensive guidance for inventories
IFRS
45
what do cost of inventories include
Costs of purchase
Costs of conversion
Other costs
design, interest if takes time to bring to saleable condition
46
what is not normally included in the cost of inventories for GAAP
interest
47
what does the cost of inventories exclude
Abnormal waste
Storage unless necessary for the production process
Administrative overhead
Selling costs
48
what inventory method does IAS 2 not allow
LIFO
49
what does IAS 2 require inventories to be reported at
lower or cost or net realizable value (NRV)
50
net realizable value (NRV)
selling price - est cost to completion - est cost to sell
51
when do we derecognize PPE
When asset is disposed
When no future economic benefits are expected
Same for both standards
52
impairment under IAS 36
carrying amount > recoverable amount
53
recoverable amount
the greater of net selling price and present value of future net cash flows
54
which standard setter is impairment more likely under
IFRS since discounted cash flows are used
55
when should impairment loss be reversed under IFRS
when recoverable amount exceeds new carrying amount:
if changes in estimates used to determine original impairment loss or change in how recoverable amount is determined
56
how much can a reversal be for
up to the original carrying amount
57
when and where is the reversal recognized
in income immediately
58
does us gaap allow for reversal
no
59
intangible asset
identifiable, nonmonetary asset without physical substance:
Held for production of goods or services, rental to others, or for administrative purposes
Controlled by enterprise as result of past events from which future economic benefits are expected to be realized
60
does ifrs or gaap want capitalization
ifrs
61
IAS 1, Presentation of Financial Statements, requires
classification of liabilities: current and noncurrent
62
current liabilities
Expected to settle in normal operating cycle
Held primarily for purpose of trading
Settled within 12 months of balance sheet date
No right to defer until 12 months after balance sheet date
Same for both standard setters
63
refinanced short-term debt ifrs
Long-term, if refinanced prior to balance sheet date
64
refinanced short-term debt u.s. gaap
Long-term, if refinancing is agreed prior to balance sheet being issued
65
bank overdrafts ifrs
Long-term, if integral part of cash management netted against cash
66
bank overdrafts u.s. gaap
Always treated as
current liabilities
67
5 steps in recognition of revenue
Identify contract with a customer
Identify the separate performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the separate performance obligations
Recognize the revenue allocated to each performance obligation when the entity satisfies each performance obligation
68
journal entry to record revenue from a new contract
Dr. Cash
Cr. Sales Revenue
Cr. Deferred Revenue
69
IFRS 15
award credits should be treated as a separately identifiable component of the sales transaction in which they are granted (airline ticket sales and points awarded)
Revenue allocated between awards credit and current sale
70
IAS 7, Statement of Cash Flows
Classified as operating, investing or financing
Operating cash flows may use direct or indirect method
71
Exchange rates have not always fluctuated. During the period 1945-1973, countries fixed their currency in terms of the U.S. dollar, and the value of the U.S. dollar was based in terms of what?
The Gold Standard
72
What are the two (2) most popular websites that publish exchange rates?
oanda.com and x-rate.com
73
T or F: The one-transaction perspective is allowable per GAAP and IFRS
F
74
If a foreign exchange transaction is an import purchase and the foreign currency appreciates, the result is a foreign exchange ________ (gain or loss). What is the mnemonic for this transaction?
Loss, PAL
75
The options contract gives the options holder this price to buy or sell foreign currency at a future date. In other words, this contracted price is the exchange rate to be exercised if the option holder decides to exercise the option
"call" option
"spot" rate
"strike" price
"forward" rate
"put" price
"strike" price
76
the forward rate may be defined as:
the price a foreign currency can be purchased or sold today
the u.s. dollar value of a foreign currency
the price today at which a foreign currency can be purchased or sold in the future
the euro value of a foreign currency
the forecasted future value of a foreign currency
the price today at which a foreign currency can be purchased or sold in the future
77
As a rule of thumb, who is more flexible in setting standards? (IFRS or U.S. GAAP)
IFRS
78
IAS 16, Property, Plant and Equipment (PPE), allows companies to choose between the historical cost method and the revaluation (fair value) method for initial recognition of an asset. Which method is not permitted under U.S. GAAP? (historical cost method or revaluation method)
revaluation method
79
Bank overdrafts are always classified as current liabilities under IFRS.
false
80
IFRS 15, Revenue Recognition, is equivalent to the US GAAP standard ASC 606. Both standards include how many steps in the recognition of revenue?
5
81
Under IFRS and the Statement of Cash Flows, interest and dividends paid may be classified as either an operating or financing activity
Yes
82
for the statement of cash flows, ____ requires interest paid and received and dividends received to be classified as operating; dividends paid must be classified as financing. ____ allows interest paid
IFRS, U.S. GAAP
83
Bank overdrafts are netted against cash rather than being recognized as a liability when overdrafts are a normal part of cash management
IFRS
84
Inventory is reported on the balance sheet using the last-in, first-out (LIFO) cost flow assumption
U.S. GAAP
85
A company writes a fixed asset down to its recoverable amount and recognizes an impairment loss in Year 1. In a subsequent year, the recoverable amount is determined to exceed the asset's carrying amount, and the previously recognized impairment loss is reversed
IFRS
86
A company that accounts for inventory using first-in, first-out (FIFO) records a write-down of a product line to its net realizable value
Both
87
A manufacturer capitalizes development costs for an industrial product when certain criteria are met
IFRS
88
For customer loyalty programs (i.e. frequent flyer points), award credits should be treated as a separately identifiable component of the sales transaction for revenue recognition. The award credits will most likely be classified as deferred revenue when granted to a customer.
Both
89
in what way does IAS 16 (property, plant and equipment) differ from U.S. GAAP concerning fixed asset measurement subsequent to initial recognition?
IAS 16 allows for upward revaluation of the asset based on fair value
IAS 16 does not allow accumulated depreciation to be shown on the balance sheet
IAS 16 requires that fixed assets be carried at fair value less accumulated impairment losses
IAS 16 allows both upward and downward revaluation of fixed assets, whereas U.S. GAAP only allows upward revaluation
IAS 16 allows for upward revaluation of the asset based on fair value
90
Fill in the blanks: IAS 16, Property, Plant and Equipment (PPE), allows companies to choose between the historical cost method and the ____ method for initial recognition of an asset. U.S. GAAP ____ allow for both methods
revaluation (fair value), does
future value, does not
revaluation (fair value), does not
future value, does
revaluation (fair value), does not
91
Which of the following inventory valuation methods, used under the U.S. GAAP, is NOT allowed under IAS 2 (Inventories)
LIFO
FIFO
Retail inventory method
Weighted Average
LIFO
92
Under IAS 2, what adjustment needs to be made after an inventory write-down if the selling price subsequently increases?
No adjustment is necessary. Once inventory is written down, it cannot be increased under IASB standards
U.S. GAAP does not allow capitalization of development costs, whereas IAS 38 allows capitalization of these costs
U.S. GAAP treats development costs as part of "Goodwill," whereas IAS 38 treats these costs as an intangible asset
U.S. GAAP requires capitalization of development costs, whereas IAS 38 makes capitalization of these costs optional
U.S. GAAP does not allow capitalization of development costs, whereas IAS 38 allows capitalization of these costs
93
Which companies are required to apply IFRS?
All companies in the world
All companies in the EU
Publicly listed companies in over 120 countries
All companies in the U.S.
Publicly listed companies in over 120 countries
94
Under IFRS and on the Statement of Cash Flows, interest and dividends paid are classified as:
operating or financing activities
operating activities
investing activities
financing activities
operating or financing activities
95
Under U.S. GAAP, bank overdrafts are always treated as current liabilities
true
96
