ACCT 425 Final Exam (UMUC)
1. Which of the following statements is true about U.S. taxation of foreign subsidiaries?
A) The U.S. does not tax income generated on subsidiaries incorporated in foreign countries.
B) U.S. multinationals pay tax on their worldwide income as soon as it is earned.
C) Transfer pricing will eliminate taxes by the U.S. government on multinational corporations.
D) U.S. tax on foreign operations does not have to be paid until the income is brought back to the United States.
2. According to IAS 37, how should contingent assets be recognized?
A) They should be disclosed in the notes to the financial statements if the inflow of resources is probable.
B) They should be recognized like any other asset, with a debit to “contingent assets.”
C) They should not be disclosed anywhere in the financial statements due to their uncertainty.
D) They should only be disclosed in the notes to the financial statements if the inflows of resources are virtually certain.
3. What would be a logical first step that should be taken to restate foreign financial statements to conform to U.S. GAAP, assuming a four-column worksheet will be used to post debit and credit adjustments and reclassifications to arrive at U.S. GAAP statements?
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.
4. When accounting rules are left up to professional associations rather than being legislated by governmental bodies, what is the likely result?
A) Very general accounting rules are created, as in code law countries.
B) Very detailed rules for practice are created, as in common law countries.
C) Very general accounting rules are created, as in common law countries.
D) Very detailed rules for practice are created, as in code law countries.
5. Which of the following is a non-financial measure of performance?
A) return on investment
B) market share
C) earnings per share
D) return on equity
6. 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.
7. What is foreign exchange risk exposure?
A) the possibility of a loss because of changes in the value of a foreign currency
B) losses caused by paying for purchased goods in a foreign currency
C) losses caused by receiving payment in a foreign currency for goods sold
D) All of the above
8. Which of the following is generally true about the differences between U.S. GAAP and IASB standards?
A) U.S. GAAP is generally more flexible than IASB standards.
B) U.S. GAAP tends to be more rule-based and the IASB standards tend to be principles-based.
C) More professional judgment is required to apply U.S. GAAP than is required for implementing IASB standards.
D) In all cases, U.S. GAAP is more detailed than the IASB standards.
9. 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%
10. Under U.S. tax law, what happens to excess foreign tax credit?
A) It reduces taxes on ordinary income in the current year.
B) It can be carried back one year to calculate a refund on additional taxes paid to the U.S. on foreign source income.
C) It is lost unless the average foreign tax rate paid by the company in the future is greater than the U.S. tax rate.
D) none of the above
Part II Fill in the Blanks, Problems & Essays
1. Tax Jurisdiction and Double Taxation Basis for taxation come from three common bases for taxation…they are source, citizenship, and residence. (Fill in the blanks below)
a. The citizenship basis taxes income of the country’s_____regardless of source or where they reside.
b. The residence basis taxes income of the country’s _____regardless of source or citizenship.
c. Almost all countries tax income earned within their borders–that is, at its___
2. List the five major areas addressing the importance of international accounting.
3. List the five major areas addressing the importance of international accounting.
4. List the factors that have had a significant influence on accounting development
5. IAS #__ provides for selection of accounting policies, accounting for changes, dealing with changes in accounting estimates and correction of errors
6. IFRS # __ outlines the accounting when an acquirer obtains control of a business.
7. Define the term hedging.
8. What are the two International Accounting Standards that provide guidance for hedging?
9. A parent company needs to determine the appropriate method for translating the financial statements of a foreign subsidiary. To determine the appropriate translation method under both SFAS 52 and IAS 21, the functional currency of a foreign subsidiary must be identified. The functional currency is the primary currency of the foreign entity’s operating environment. It can be either the parent’s reporting currency or a foreign currency (generally the local currency). The functional currency orientation results in the following rule. Please fill in the blanks re translation method and the translation adjustments.
Functional Currency Translation Method Translation Adjustment
Parent’s currency _________________ ___________________
Foreign currency _________________ ____________________
10. Define functional currency.
11. The following are Capital Budgeting Techniques
12. The following inventory information above was taken from the records of GlobeKom Ltd.
13. Strategic issues for MNCs…from the list below research your MNC and write one or two paragraphs explaining how the MNC handles all of the issues.
14. Tell me why I should invest in your MNC; you must provide at least one calculation (show calculation details) for a capital investment evaluation; i.e. ROI, NPV, IRR or the payback period.
Hershey company achieved return on average invested assets of 22.53% in the first quarter 2015, above company average return on investment
15. Transfer pricing is more than just taxation. There are many other implications. List at least three
16. In your own words, what is your understanding of the Sarbanes-Oxley Act of 2002 and what impact does the law have on your selected MNC.
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