ACC/401 Advanced Accounting Week 8 Quiz - Strayer

ACC 401 Week 8 Quiz - Strayer

Chapter 11

 International Financial Reporting Standards Multiple Choice—Conceptual 
1.		The goals of the International Accounting Standards Committee include all of the following except
a.	To improve international accounting.
b.	To formulate a single set of auditing standards to be applied in all countries.
c.	To promote global acceptance of its standards.
d.	To harmonize accounting practices between countries.

2.		Which of the following is true about the FASB after the mandatory adoption of IFRS by US companies?
a.	The FASB will serve in an advisory capacity to the IASB.
b.	The FASB will remain the designated standard-setter for US companies, but incorporate IFRS into US GAAP.
c.	The role of the FASB post-IFRS adoption has not been determined.
d.	The FASB will cease to exist.

3.		Milestones in the transition plan for mandatory adoption of IFRS by US companies include all of the following except:
a.	Improvements in accounting standards.
b.	Limited early adoption of IFRS in an effort to enhance comparability for US investors
c.	Mandatory use of IFRS by US entities.
d.	All of the above are milestones in the transition plan for mandatory adoption of IFRS by US companies.

4.		The roles of the IASC Foundation include
a.	establishing global standards for financial reporting.
b.	coordinating the filing requirements of stock exchange regulatory agencies.
c.	financing IASB operations.
d.	all of the above are roles of the IASC Foundation.

5.		Which of the following statements is true regarding the IASC?
a.	The IASC is a public-sector, not-for-profit organization.
b.	The IASC is accountable to an international securities regulator.
c.	The IASC is a stand-alone, private-sector organization.
d.	The IASC funds the operations of the IASB through filing fees paid to national securities regulators.

6.	.	Concerns of the SEC with regard to the mandatory adoption of IFRS by US entities include all of the following except:
a.	the extent to which the standard-setting process addresses emerging issues in a timely manner.
b.	the security and stability of IASC funding.
c.	the enhancement of IASB independence through a system of voluntary contributions from firms in the accounting profession.
d.	the degree to which due process is integrated into the standard-setting process .

7.	.	Under the staged transition to mandatory adoption of IFRS being considered by the SEC,
a.	large, accelerated filers would begin IFRS filings for fiscal years beginning on or after December 31, 2011.
b.	non-accelerated filers would begin IFRS filings for fiscal years beginning on or after December 31, 2015.
c.	large non-accelerated filers would have until fiscal years beginning on or after December 15, 2017 to adopt IFRS.
d.   smaller reporting companies would begin IFRS filings for fiscal years beginning on or after December 15, 2016.
.
8.		In order to complete its first IFRS filing, including three years of audited financial statements, according to the staged transition to mandatory adoption of IFRS considered by the SEC, a large accelerated filer would need to adopt IFRS beginning in fiscal year
a.	2011.
b.	2012.
c.	2013.
d.	2014.

9.		Benefits of the FASB Accounting Standards Codification (ASC) include all of the following except
a.	increases the independence of the FASB.
b.	aids in the convergence of US GAAP with IFRS.
c.	reduces time and effort required to research accounting issues.
d.	clearly distinguishes between authoritative and non-authoritative guidance.

10.		SFAS No.162, the Accounting Standards Codification, is directed to
a.	auditors.
b.	Boards of Directors.
c.	securities regulators.
d.	entities.

11.		IFRS and US GAAP differ with regard to financial statement presentation in all of the following except
a.	IFRS generally requires that assets be listed in order of increasing liquidity while US GAAP requires that assets be listed in order of decreasing liquidity.
b.	US GAAP requires expenses to be listed by function while IFRS requires expenses to be listed by nature.
c.	IFRS prohibits extraordinary items which are allowed by US GAAP.
d.	IFRS requires two years of comparative income statements while under US GAAP, three years of income statements are required.

12.		The major difference between IFRS and US GAAP in accounting for inventories is that
a.	US GAAP prohibits the use of specific identification.
b.	IFRS requires the use of the LIFO cost flow assumption.
c.	US GAAP prohibits the use of the LIFO cost flow assumption
d.	US GAAP allows the use of the LIFO cost flow assumption.





13.		One difference between IFRS and GAAP in valuing inventories is that
a.	IFRS, but not GAAP, allows reversals so that inventories written down under lower-of-cost-or-market can be written back up to the original cost .
b.	GAAP defines market value as replacement cost where IFRS defines market as the selling price.
c.	GAAP strictly adheres to the historical cost concept and does not allow for write-downs of inventory values while IFRS embraces fair value.
d.	IFRS, but not GAAP, requires that inventories be valued at the lower of cost or market.

14.		In accounting for research and development costs.
a.	the general rule under both US GAAP and IFRS is that research and development costs should be expensed as incurred .
b.	IFRS generally expenses all research and development costs while US GAAP expenses research costs as incurred but capitalizes development costs once technological and economic feasibility has been demonstrated.
c.	US GAAP generally expenses all research and development costs while IFRS expenses research costs as incurred but capitalizes development costs once technological and economic feasibility has been demonstrated.
d.	both US GAAP and IFRS expense research costs as incurred but capitalize development costs once technological and economic feasibility has been demonstrated.
.
15.		Property, plant and equipment are valued at
a.	historical cost under both IFRS and US GAAP.
b.	historical cost or revalued amounts under both IFRS and US GAAP.
c.	revalued amounts under IFRS.
d.	historical cost under US GAAP while IFRS allows the assets to be valued at either historical cost or revalued amounts.

16.		The amount of a long-lived asset impairment loss is generally determined by comparing
a.	the asset’s carrying amount and its fair value under US GAAP.
b.	the asset’s carrying amount and its discounted future cash flows less cost to sell under IFRS.
c.	the asset’s carrying amount and its undiscounted future cash flows under US GAAP.
d.	the asset’s carrying amount and its undiscounted future cash flows less disposal cost under IFRS.

17.		In accounting for liabilities, IFRS interprets “probable” as
a.	likely.
b.	more likely than not.
c.	somewhat possible.
d.	possible and not remote.

18.		Accounting under IFRS and US GAAP is similar for all of the following topics except
a.	changes in estimates.
b.	related party transactions.
c.	research and development costs.
d.	changes in methods.

Use the following information to answer the next three questions.

On January 1, 2010, AirFrance purchases an airplane for €14,400,000.  The components of the airplane and their useful lives are as follows:

Component	Cost	Useful life
Frame	€7,200,000	24 years
Engine	4,800,000	20 years
Other	2,400,000	10 years
	
		AirFrance uses the straight-line method of depreciation.  The asset is assumed to have no salvage value.

19.		Under IFRS, the entry to record the acquisition of the airplane would include
a.	a debit to Asset/ Airplane of €14,400,000.
b.	a debit to Asset/ Airplane frame of €14,400,000.
c.	a debit to Asset/ Airplane engine of €4,800,000.
d.	cannot be determined from the information given.

20.		Under US GAAP, the entry to record depreciation expense on the asset at December 31, 2011 will include
a.	a credit to accumulated depreciation of €1,200,000.
b.	a debit to depreciation expense of €1,440,000
c.	a debit to depreciation expense of €800,000.
d.	a credit to accumulated depreciation of €600,000.

21.		Under IFRS, the entry to record depreciation expense on the asset at December 31, 2011 will include a credit to accumulated depreciation of
a.	€1,440,000.
b.	€1,200,000
c.	€800,000.
d.	€600,000.

22.		Accounting terminology that differs between IFRS and US GAAP include all of the following except
a.	the use by IFRS of “turnover” for revenue.
b.	the use by IFRS of “share premium” for additional paid-in-capital.
c.	the use by IFRS of “other capital reserves” for retained earnings.
d.	the use by IFRS of “issued capital” for common stock.

23.		New terminology introduced under the joint IFRS- US GAAP Customer Consideration (Allocation) Model includes all of the following except
a.	revenue recognition voids.
b.	contract rights.
c.	net contract asset/ liability.
d.	performance obligations.





24.		Under IFRS, the criteria to determine whether a lease should be capitalized include
a.	the present value of the minimum lease payments is 90% or more of the fair value of the asset at the inception of the lease.
b.	the term of the lease is 75% or more of the economic life of the asset.
c.	the term of the lease is equal to substantially all of the economic life of the asset.
d.	the present value of the minimum lease payments is equal to substantially all of the fair value of the asset at the inception of the lease.

Use the following information to answer the next three questions.

Bellingham Electronics Inc. offers one model of laptop computer for £1000 and a two-year warranty for £250.  The retailer, as part of a Boxing Day promotion, offers a limited-time offer for the laptop, including delivery and the two-year warranty for £1,180.  The cost of the computer to Bellingham is £700.  Any warranty repairs are assumed to be done ratably over time.  Bellingham accounts for transactions using the customer consideration model.

In the first twelve months following the sale, Bellingham incurred £980 of costs servicing the computers under warranty.  

25.		Bellingham sells ten laptops to Bertram Inc. under the limited-time promotion.  Upon delivery of the laptops to Bertram, Bellingham will recognize revenue of 
a.	£9,300.
b.	£9,440
c.	£10,000.
d.	£11,800.

26.		In the first twelve months following the sale, Bellingham would reduce the Contract liability – warranty account by
a.	£784.
b.	£980
c.	£1,180.
d.	£1,380.

27.		In the first twelve months, Bellingham would record warranty expense of 
a.	£784.
b.	£980
c.	£1,180.
d.	£1,380.

28.		Significant differences between IFRS and Chinese GAAP include all of the following except
a.	Chinese GAAP allows the use of LIFO while IFRS prohibits it.
b.	Chinese GAAP has different related party disclosure requirements.
c.	Chinese GAAP follows the cost principle while IFRS allows for revaluations and recoveries of impairment losses.
d.	Chinese GAAP uses the equity method of accounting for jointly controlled entities while IFRS also allows proportionate consolidation.


29.		All of the following are options for non-US companies who wish to list securities on a US exchange except
a.	The company can use either IFRS or their local GAAP.
b.	If a company uses their local GAAP they must reconcile net income and shareholders’ equity or fully disclose all financial information required of US companies.
c.	If a company uses their local GAAP they must reconcile net income and shareholders’ equity and fully disclose all financial information required of US companies
d.	The company must file a form 20-F with the SEC.

30.		All of the following are true regarding American Depository Receipts (ADRs) except 
a.	Most ADRs are unsponsored, meaning that the DR bank creates a DR program without a formal agreement with the issuing non-US company.
b.	An ADR is a derivative instrument traded in the US that usually represents a fixed number of publicly traded shares of a non-US company.
c.	ADRs are denominated in US dollars.
d.	A Level 1 sponsored ADR is the easiest way for a non-US company to access US markets.

Exercise from the Textbook

Exercise 11-1

Component Depreciation SMC Company purchases a building for $100,000. Included in this cost are $12,000 for electrical systems and $15,000 for the roof. The building is expected to have a 40 year useful life, but the electrical system will last for 20 years and the roof will last 15 years. 

Required: Part A: Assuming that straight-line depreciation is used, compute depreciation expense assuming that U.S. GAAP is used. 

Part B: Assuming that straight line depreciation is used, compute depreciation expense for year one assuming IFRS is used (assume component depreciation).



Problem from the Textbook

Problem 11-4


 

Prepare a statement of financial position using the proposed new format as described in the chapter.


Questions from the Textbook

1.	As mentioned in Chapter 1, the project on business combinations was the first of several joint projects undertaken by the FASB and the IASB in their move to converge standards globally. Nonetheless, complete convergence has not yet occurred, and there are those who believe it to be a poor idea. Discuss the reasons for and against global convergence.
 
2.	In recent months, virtually every topic that has come to the attention of the standard setters has been undertaken as a joint effort of the FASB and the IASB rather than as an individual effort by one of the two boards. List and discuss some of the joint projects that fall into this category. 
3.	What is the rationale for the harmonization of international accounting standards? 

4.	Why is the SEC, once so reluctant to accept IAS, now very willing to allow firms using IFRS to is-sue securities in the U.S. stock market without reconciling to U.S. GAAP?

5.	Discuss the types of ADRs that non-U.S. companies might use to access the U.S. markets.

6.	Describe the attitude of the FASB toward the IASB (International Accounting Standards Board).

7.	How does the FASB view its role in the development of an international accounting system? Currently, two members of the IASB board were affiliated with the FASB. Comment on what effect this might have on the likelihood that the U.S. standard setters will accept the new IASB statements, if any?

8.	List some of the major differences in accounting between IFRS and U.S. GAAP.



Business Ethics Question from the Textbook

A vice president of marketing for your company has been charged with embezzling nearly $100,000 from the company. The vice president allegedly submitted fraudulent vendor invoices in order to receive payments. As the vice president of marketing for the company, the vice president is authorized to approve the payment of invoices submitted by third-party vendors who did work for the company. After the activities were uncovered, the company responded by stating: “All employees are accountable to our ethics guidelines and procedures. We do not tolerate violations of our ethics policy and will consistently enforce these policies and procedures.”

1.	How would you evaluate the internal controls of the company?

2.	Do you think there are companies that develop comprehensive ethics and compliance pro-grams for mid- and lower-level employees and ignore upper-level executives and managers?

3.	Is it an ethical issue if companies are not forth-coming concerning fraudulent activities of top executives in an effort to minimize negative publicity?



Chapter 12

Accounting for Foreign Currency Transactions And Hedging Foreign Exchange Risk

Multiple Choice

1.	A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a:
a.	hedge of a net investment in a foreign entity.
b.	hedge of an exposed asset or liability position.
c.	hedge of an identifiable foreign currency commitment.
d.	contract acquired to speculate in the movement of exchange rates.

2.	The discount or premium on a forward contract entered into as a hedge of an exposed asset or liability position should be:
a.	included as a separate component of stockholders’ equity.
b.	amortized over the life of the forward contract.
c.	deferred and included in the measurement of related foreign currency transaction.
d.	none of these.

3.	An indirect exchange rate quotation is one in which the exchange rate is quoted:
a.	in terms of how many units of the domestic currency can be converted into one unit of foreign currency.
b.	for the immediate delivery of currencies exchanged.
c.	in terms of how many units of the foreign currency can be converted into one unit of domestic currency.
d.	for the future delivery of currencies exchanged.

4.	A transaction gain is recorded when there is an:
a.	importing transaction and the exchange rate increases.
b.	exporting transaction and the exchange rate increases.
c.	exporting transaction and the exchange rate decreases.
d.	none of these.

5.	During 2011, a U.S. company purchased inventory from a foreign supplier. The transaction was denominated in the local currency of the seller. The direct exchange rate increased from the date of the transaction to the balance sheet date. The exchange rate decreased from the balance sheet date to the settlement date in 2012. For the years 2011 and 2012, transaction gains or losses should be recognized as:
	2011	2012
a.		gain	gain
b.		gain	loss
c.		loss	loss
d.		loss	gain


6.	A transaction gain or loss is reported currently in the determination of income if the purpose of the forward contract is to:
a.	hedge a net investment in a foreign entity.
b.	hedge an identifiable foreign currency commitment.
c.	speculate in foreign currency.
d.	none of these.

7.	On November 1, 2011, American Company sold inventory to a foreign customer. The account will be settled on March 1 with the receipt of $500,000 foreign currency units (FCU). On November 1, American also entered into a forward contract to hedge the exposed asset. The forward rate is $0.70 per unit of foreign currency. American has a December 31 fiscal year-end. Spot rates on relevant dates were:

		Per Unit of
	Date	Foreign Currency
	November 1	$0.73
	December 31	0.71
	March 1	0.74

The entry to record the forward contract is
a.	FCU Receivable	350,000
	Premium on Forward Contract	15,000
		Dollars Payable		365,000

b.	Dollars Receivable	365,000
		Discount on Forward Contract		15,000
		FCU Payable		350,000

c.	FCU Receivable	365,000
		Discount on Forward Contract		15,000
		Dollars Payable		350,000

d.	Dollars Receivable	350,000
	Discount on Forward Contract	15,000
		FCU Payable		365,000

 
8.	On November 1, 2011, American Company sold inventory to a foreign customer. The account will be settled on March 1 with the receipt of $450,000 foreign currency units (FCU). On November 1, American also entered into a forward contract to hedge the exposed asset. The forward rate is $0.70 per unit of foreign currency. American has a December 31 fiscal year-end. Spot rates on relevant dates were:

		Per Unit of
	Date	Foreign Currency
	November 1	$0.73
	December 31	0.71
	March 1	0.74

What will be the adjusted balance in the Accounts Receivable account on December 31, and how much gain or loss was recorded as a result of the adjustment?
	
	Receivable Balance	Gain/Loss Recorded
a.	$319,500	$9,000 gain
b.	$319,500	$9,000 loss
c.	$333,000	$4,500 gain
d.	$333,000	$18,000 gain

9.	A transaction gain or loss at the settlement date is:
a.	a change in the exchange rate quoted by a foreign exchange trader.
b.	synonymous with the translation of foreign currency financial statements into dollars.
c.	the difference between the recorded dollar amount of an account receivable denominated in a foreign currency and the amount of dollars received.
d.	the difference between the buying and selling rate quoted by a foreign exchange trader at the settlement date.

10.	From the viewpoint of a U.S. company, a foreign currency transaction is a transaction:
a.	measured in a foreign currency.
b.	denominated in a foreign currency.
c.	measured in U.S. currency.
d.	denominated in U.S. currency.

11.	The exchange rate quoted for future delivery of foreign currency is the definition of a(n):
a.	direct exchange rate.
b.	indirect exchange rate.
c.	spot rate.
d.	forward exchange rate.

12.	A transaction loss would result from:
a.	an increase in the exchange rate applicable to an asset denominated in a foreign currency.
b.	a decrease in the exchange rate applicable to a liability denominated in a foreign currency.
c.	the import of merchandise when the transaction is denominated in a foreign currency.
d.	a decrease in the exchange rate applicable to an asset denominated in a foreign currency.

13.	The forward exchange rate quoted for the remaining term of a forward contract is used to account for the contract when the forward contract:
a.	extends beyond one year or the current operating cycle.
b.	is a hedge of an identifiable foreign currency commitment.
c.	is a hedge of an exposed net liability position.
d.	was acquired to speculate in foreign currency.

14.	A transaction gain or loss on a forward contract entered into as a hedge of an identifiable foreign currency commitment may be:
a.	included as a separate item in the stockholders’ equity section of the balance sheet.
b.	recognized currently in the determination of net income.
c.	deferred and included in the measurement of the related foreign currency transaction.
d.	none of these.

15.	Craiger, Inc. a U.S. corporation, bought machine parts from Reinsch Company of Germany on March 1, 2011, for 70,000 marks, when the spot rate for marks was $0.5395. Craiger’s year-end was March 31, 2011, when the spot rate for marks was $0.5445. Craiger bought 70,000 marks and paid the invoice on April 20, 2011, when the spot rate was $0.5495. How much should be shown in Craiger’s income statements as foreign exchange (transaction) gain or loss for the years ended March 31, 2011 and 2012?

		2011	2012
a.	$0	$0
b.	$0	$350 loss
c.	$350 loss	$0
d.	$350 loss	$350 loss

16.	A forward exchange contract is transacted at a discount if the current forward rate is:
a.	less than the expected spot rate.
b.	more than the expected spot rate.
c.	less than the current spot rate.
d.	more than the current spot rate.

17.	Stuart Corporation a U.S. company, contracted to purchase foreign goods. Payment in foreign currency was due one month after delivery. Between the delivery date and the time of payment, the exchange rate changed in Stuart’s favor. The resulting gain should be reported in the financial statements as a(n):
a.	component of other comprehensive income.
b.	component of income from continuing operations.
c.	extraordinary income.
d.	deferred income.

18.	Jackson Paving Company purchased equipment for 350,000 British pounds from a supplier in London on July 7, 2011. Payment in British pounds is due on Sept. 7, 2011. The exchange rates to purchase one pound is as follows:
		July 7	August 31, (year end)	September 7
	Spot-rate	2.08	2.05	2.04
	30-day rate	2.07	2.03	  --
	60-day rate	2.06	1.99	  --

	On its August 31, 2011 income statement, what amount should Jackson Paving report as a foreign exchange transaction gain:
a.	$14,000.
b.	$7,000.
c.	$10,500.
d.	$0.

19.	On September 1, 2011, Swash Plating Company entered into two forward exchange contracts to purchase 250,000 euros each in 90 days. The relevant exchange rates are as follows:

		Forward Rate
	Spot rate	For Dec. 1, 2011
	September 1, 2011	1.46	1.47
	September 30, 2011 (year-end)	1.50	1.48

The first forward contract was to hedge a purchase of inventory on September 1, payable on December 1. On September 30, what amount of foreign currency transaction loss should Swash Plating report in income?
a.	$0.
b.	$2,500.
c.	$5,000.
d.	$10,000.

20.	On September 1, 2011, Swash Plating Company entered into two forward exchange contracts to purchase 250,000 euros each in 90 days. The relevant exchange rates are as follows:

		Forward Rate
	Spot rate	For Dec. 1, 2011
	September 1, 2011	1.46	1.47
	September 30, 2011 (year-end)	1.50	1.48

The second forward contract was strictly for speculation. On September 30, 2011, what amount of foreign currency transaction gain should Swash Plating report in income?
a.	$0.
b.	$2,500.
c.	$5,000.
d.	$10,000.

21.	On November 1, 2011, Prism Company sold inventory to a foreign customer. The account will be settled on March 1 with the receipt of 250,000 foreign currency units (FCU). On November 1, Prism also entered into a forward contract to hedge the exposed asset. The forward rate is $0.90 per unit of foreign currency. Prism has a December 31 fiscal year-end. Spot rates on relevant dates were:

	Per Unit of
Date	Foreign Currency
November 1	$0.93
December 31	0.91
March 1	0.94

The entry to record the forward contract is
a.	FCU Receivable	225,000
	Premium on Forward Contract	7,500
		Dollars Payable		232,500

b.	Dollars Receivable	232,500
		Discount on Forward Contract		7,500
		FCU Payable		225,000

c.	 FCU Receivable	232,500
		Discount on Forward Contract		7,500
		Dollars Payable		225,000

d.	Dollars Receivable	225,000
	Discount on Forward Contract	7,500
		FCU Payable		232,500

22.	On November 1, 2011, National Company sold inventory to a foreign customer. The account will be settled on March 1 with the receipt of 200,000 foreign currency units (FCU). On November 1, National also entered into a forward contract to hedge the exposed asset. The forward rate is $0.80 per unit of foreign currency. National has a December 31 fiscal year-end. Spot rates on relevant dates were:

		Per Unit of
	Date	Foreign Currency
November 1	$0.83
December 31	0.81
March 1	0.84

What will be the adjusted balance in the Accounts Receivable account on December 31, and how much gain or loss was recorded as a result of the adjustment?

		Receivable Balance	Gain/Loss Recorded
a.		$170,000	$4,000 gain
b.		$162,000	$4,000 loss
c.		$168,000	$2,000 gain
d.		$164,000	$2,000 loss

23.	Caldron Company purchased equipment for 375,000 British pounds from a supplier in London on July 3, 2011. Payment in British pounds is due on Sept. 3, 2011. The exchange rates to purchase one pound is as follows:
		July 3	August 31, (year end)	September 3
	Spot-rate	1.58	1.55	1.54
	30-day rate	1.57	1.53	--
	60-day rate	1.56	1.49	--

	On its August 31, 2011, income statement, what amount should Caldron report as a foreign exchange transaction gain:
a.	$18,750.
b.	$3,750.
c.	$11,250.
d.	$0.

24.	On April 1, 2011, Trent Company entered into two forward exchange contracts to purchase 300,000 euros each in 90 days. The relevant exchange rates are as follows:

		Forward Rate
	Spot rate	For Aug. 1, 2011
April 1, 2011	1.16	1.17
April 30, 2011 (year-end)	1.20	1.18

The first forward contract was to hedge a purchase of inventory on April 1, payable on December 1. On April 30, what amount of foreign currency transaction loss should Trent report in income?
a.	$0.
b.	$3,000.
c.	$9,000.
d.	$12,000.

25.	On April 1, 2011, Trent Company entered into two forward exchange contracts to purchase 300,000 euros each in 90 days. The relevant exchange rates are as follows:

		Forward Rate
	Spot rate	For Aug. 1, 2011
April 1, 2011	1.16	1.17
April 30, 2011 (year-end)	1.20	1.18

The second forward contract was strictly for speculation. On April 30, 2011, what amount of foreign currency transaction gain should Trent report in income.
a.	$0.
b.	$3,000.
c.	$9,000.
d.	$12,000.

  • Item #: 276

ACC 401 Advanced Accounting Week 8 Quiz - Strayer

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