Final Exam

Total Marks: 40

Course Title: International Accounting

Course Code: BSAC – 413
Section: IAM
Reference: 13577

Name: _____________________________________ (USE CAPITAL LETTERS)

Student ID:_________________________________
Teacher: Dr. Ahmed ZAMZAM Date: 29/12/2019 Time: 09.00 – 11.00 Building: NJ4 Room: 405A

TRUE/FALSE – Conceptual: 10 • In boxes 1 – 20 on your answer sheet, write:

T: if the statement agrees with the information.
F: if the statement contradicts with the information.

1. A greenfield investment is a foreign investment hat has been approved by the Environmental Protection Agency.
2. A translation adjustment may be necessary when a foreign currency financial statements are converted to another
currency.
3. The factor used to convert from one country's currency to another country's currency is called the Interest rate.
4. Foreign direct investment refers only to the amount of money U.S. corporations put into non-U.S. businesses.
5. Under SFAS 52, the functional currency is the primary currency used by the subsidiary.
6. Gros margin is a standard line item on income statements throughout the world.
7. Hedge accounting is only advantageous when a foreign currency depreciates between the transaction date and the
payment date.
8. Hedge is one form of foreign direct investment.
9. More professional judgment is required to apply U.S. GAAP than is required for implementing IASB standards.
10. A foreign exchange rate is the price to buy a foreign goods.
11. Purchasing an option to buy foreign currency at a predetermined exchange rate in order to reduce exchange risk is
called hedging.
12. The LIFO inventory valuation method commonly used in the U.S. is NOT allowed under IAS 2. Inventories.
13. The factor used to convert from one country's currency to another country's currency is called the interest rate.
14. The ownership and control of foreign assets such as a manufacturing plant is called Foreign direct investment.
15. Hedge is a business transaction made to reduce the exposure of foreign exchange risk.
16. Transfer pricing is the value of sales made in a foreign country.
17. Translation eliminates the problems associated with comparing financial statements in the same language.
18. U.S. GAAP is generally more flexible than IASB standards.

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19. U.S. GAAP tends to be more rule-based and the IASB standards tend to be principles-based.
20. When setting transfer prices among international subsidiaries, the corporation must follow the transfer pricing policy
used for domestic transfers.
MULTIPLE CHOICE – Conceptual: 15 • Circle the letter of the one best answer to each question.
• Write your answers in boxes 21 – 50 on your answer sheet.

21. What is meant by the translation of foreign currency financial statements?

a. Converting financial statements prepared under foreign GAAP into domestic GAAP
b. Converting financial statements of a foreign currency into a domestic currency
c. Converting the language used in financial statements from foreign to domestic
d. Converting historic cost financial statements into current cost financial statements
22. What is another term for balance sheet exposure?
a. Transaction exposure
b. Exchange exposure
c. Translation exposure
d. Negative exposure
23. 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
24. Which of the following methods for translating foreign currency financial statements attempts to produce
consolidated financial statements as if a subsidiary had actually used the parent company's currency for all its
transactions?
a. Current/Noncurrent method
b. Monetary/Nonmonetary method
c. Current rate method
d. Temporal method
25. 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
26. Northland Corporation recorded £1,000,000 in Accounts Receivable for sales to customers in the United Kingdom
and recorded Accounts Payable of 2,000,000 yuan for product purchased from China. If Northland recorded a
foreign currency exchange loss on its receivables and a foreign currency gain on its payables, what must have
happened to each currency?
a. Yuan appreciated; Pound depreciated
b. Yuan depreciated; Pound appreciated
c. Yuan appreciated; Pound appreciated
d. Yuan depreciated; Pound depreciated
27. Which of the following groups is a supranational organization?
a. United Nations
b. Organization for Economic Cooperation and Development
c. International Federation of Accountants
d. All of the above
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28. According to SFAS 52, which of the following conditions would indicate that a foreign subsidiary's functional
currency is the parent company's currency?
a. Active local sales market
b. Sales price is not affected by changes in exchange rate in the short run.
c. High volume of intercompany transactions
d. All of the above are indicators that the functional currency is the parent company's currency
29. According to SFAS 52, which of the following conditions would indicate that a foreign subsidiary's functional
currency is the parent company's currency?
a. Active local sales market
b. Sales price is not affected by changes in exchange rate in the short run
c. High volume of intercompany transactions
d. All of the above are indicators that the functional currency is the parent company's currency
30. Under the temporal method of consolidating foreign currency financial statements, what exchange rate should be
used for translating the depreciation expense recorded by a subsidiary?
a. Average rate
b. Current rate
c. Historical rate
d. Forward rate
31. Under the temporal method of translating foreign currency financial statements, what exchange rate should be used
for cost of goods sold?
a. Spot rate at the end of the year
b. Average rate during the year
c. Spot rate mid-year
d. There is no single rate because beginning and ending inventory must be converted at different exchange
rates than purchases.
32. International accounting standards define functional currency as:
a. The currency of the parent company
b. The currency of the primary economic environment in which the subsidiary operates
c. The currency of the primary economic environment in which the parent operates
d. The currency used by a subsidiary for its financial reporting
33. In what way should operating leases be accounted for under IAS 17?
a. The lease payments should be capitalized and shown on the balance sheet as an asset
b. The lease payments must be expensed as they are incurred
c. IAS 17 is flexible, allowing both capitalization and expensing of operating lease costs
d. The lessee capitalizes the operating lease and the lessor expenses the lease
34. Under IAS 16. Property, Plant, and Equipment subsequent revaluation decreases are:
a. Never recognized
b. Credited to a revaluation surplus account
c. Recognized as an expense on the Income Statement
d. First recognized as a reduction in any related revaluation surplus
35. What is one problem in translating retained earnings using either the temporal or current rate method?
a. There is no problem, since both methods use the historic rate method for stockholders’ equity accounts.
b. Dividends are based on an average cost method.
c. Net income is calculated differently, depending upon which method is used.
d. Dividends are based on the current exchange rate under the current rate method, while they are based on
historical rates under the temporal method.

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36. Determination of net present value involves:
a. Forecasting future profits and cash flows
b. Discounting future cash flows back to their present value
c. Analysis on an after-tax basis
d. All of the above
37. For an upcoming trip, Pat wants to buy Euros at the local bank when the current exchange rate quoted in the Wall
Street Journal was $1.563 per €1. What should Pat plan to pay for €1,000?
a. Exactly $1,563
b. More than $1,563
c. About $640
d. Less than $640
38. What is the cause of balance sheet exposure?
a. Converting subsidiary account balances to balances denominated in the parent company's currency at
historical exchange rates
b. Completing international transactions in currency other than the currency of the home company
c. Translating subsidiary account balances to amounts denominated in the parent company's currency
d. None of the above
39. Companies must choose between which exchange rates for consolidating foreign subsidiaries?
a. Spot rate and forward rate
b. Spot rate and current rate
c. Current rate and historical rate
d. Domestic rate and international rate.
40. How should discounts or premiums on forward contracts be treated if the derivative is hedging a foreign-currency-
denominated asset?
a. They should be carried on the balance sheet until the contract is completed.
b. They should be included in income in the period the derivative is acquired.
c. They should be amortized over the life of the forward contract.
d. None of the above.
41. Why must the two-transaction approach be used for recording foreign currency transactions under U.S. GAAP?
a. The two-transaction approach is required under IFRS.
b. U.S. GAAP requires conservatism in financial reporting.
c. All other methods are excessively complicated to use and therefore obscure the essence of the transaction.
d. Management made two decisions: one to sell and another to extend credit in a foreign currency.
42. 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.
43. What is the intrinsic value of a foreign currency option?
a. The difference between the spot rate and the strike price.
b. The gain on the option if it was exercised immediately.
c. The chance that a currency will rise over time to make the option in the money.
d. The difference between a call option and a put option.
44. 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.
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45. When a currency can increase or decrease in value relative to other currencies, the currency is said to:
a. Be pegged to another currency
b. Be less valuable
c. Float
d. Devalue
46. 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.
47. Under U.S. GAAP, interest on loans secured to acquire fixed assets must be:
a. Expensed in the period they are incurred.
b. Capitalized as part of the fixed asset cost.
c. Either expensed currently or capitalized as part of the fixed asset cost.
d. Charged against revenue in the year the asset is put into service.
48. What types of issues cause differences between International Financial Reporting Standards and U.S. GAAP?
a. Measurement
b. Alternatives available
c. Disclosure
d. All the above may be different between IFRS and U.S. GAAP
49. What group is primarily responsible for harmonization of accounting standards?
a. Financial Accounting Standards Board
b. American Accounting Association
c. International Federation of Accountants
d. International Accounting Standards Board
50. What term is used to describe combining the financial statements of all subsidiaries, both foreign and domestic, into
the financial statements of the parent?
a. Harmonization
b. Hedging
c. Consolidation
d. Incorporation

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MULTIPLE CHOICE – Computational: 15 • Circle the letter of the one best answer to each question.
• Write your answers in boxes 51 – 65 on your answer sheet.

Use the following to answer question 51 – 52:

The following inventory information above was taken from the records of GlobeKom Ltd.:
Historical cost $11,250
Replacement cost $08,250
Expected selling price $10,250
Expected selling cost $01,000
Normal profit margin $01,850
51. Under IAS 2, what should the Balance Sheet report
for Inventory?
a. $19,050
b. $09,250
c. $12,700
d. $11,250
52. Under U.S. GAAP, what should the Balance Sheet
report for Inventory?
a. $08,250
b. $09,250
c. $12,700
d. $11,250
Use the following to answer question 53 – 55:
The following information was taken from the fixed asset records of Bosco Ltd.as of December 31, 2006:
Carrying value $63,500
Selling price $56,500
Cost of disposal $02,500
Expected future cash flows $47,000
Present value of expected future cash flows $37,000

53. Using IAS 36, what is the amount of Impairment

Loss?
a. $09,500
b. $13,000
c. $22,500
d. $37,500
54. What is the amount of Impairment Loss under U.S.
GAAP?
a. $16,500
b. $13,000
c. $20,500
d. $17,500
55. Using IAS 36, what is the recoverable amount?
a. $47,000
b. $72,000
c. $54,000
d. $37,000

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Use the following to answer question 56 – 57:
Amazing Corporation, a U.S. enterprise, sold product to a customer in Wales on October 1, 2011 for £1,800,000 with
payment required on April 1, 2012. Relevant exchange rates are:
Spot rate Forward rate (to 4/1/2012)
October 1, 2011 $0.524 $0.520
December 31, 2011 $0.520 $0.519
April 1, 2012 $0.528
The discount factor corresponding to the company's incremental borrowing rate for 6 months is 0.95.

56. If Amazing Corporation does not hedge this

transaction, what is the amount of exchange gain
or loss that it should show on its December 31,
2011 income statement?
a. Loss $7,200
b. Loss $2,400
c. Gain $3,600
d. Gain $5,400
57. Assume that Amazing Corporation enters a forward
contract on October 1, 2011 to sell £1,800,000 six
months hence, on April 1, 2012. How should
Amazing Corporation report the forward contract on
its December 31, 2011 financial statements?
a. Asset $5,130
b. Liability $5,130
c. Asset $1,140
d. Asset $2,850
Use the following to answer questions 58 – 60:
On December 1, 2001 Pimlico made sales to a customer in India and recorded Accounts Receivable of 10,000,000
rupees. The customer has until March 1, 2002 to pay. On December 1, 2001, Pimlico paid $500 for a put option to sell
rupees at a strike price of $3.20 per 100 rupees on March 1, 2002, which was the spot rate on December 1, 2001. On
December 31, 2001, the spot rate was $3.50 per 100 rupees and the option premium was $0.004 per 100 rupees.
58. What is the fair value of the option on December
31, 2001?
a. $0
b. $400
c. $500
d. $10,000
59. What is the foreign currency exchange gain or loss
on December 31, 2001?
a. $30,000 gain
b. $30,000 loss
c. $10,000 loss
d. $10,000 gain

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60. If the spot rate on March 1, 2002 was $3.25 per
100 rupees, what is the foreign currency exchange
gain or loss that should be recorded that day?
a. $25,000 gain
b. $25,000 loss
c. $15,000 loss
d. $15,000 gain
Use the following to answer question 61 – 62:
Placo Ltd., a Scottish subsidiary of Limko, Inc., a U.S. company, showed cost of goods sold on its income statement for
the year ended December 31, 2011:
Inventory, 1/1/2011 £322,500
Purchases £165,000
Cost of goods available for sale £487,500
Inventory, 12/31/2011 £142,500
Cost of goods sold £345,000

Exchange rates/£1
December 31, 2011 $0.820
December 31, 2010 $0.877
2011 average $0.858

61. What amount should be used to consolidate

Placo's cost of goods sold into Limko's income
statement under the current rate method?
a. $205,095
b. $296,010
c. $131,560
d. $201,825
62. What amount should be used to consolidate
Placo's cost of goods sold into Limko's income
statement under the temporal method?
a. $136,730
b. $188,715
c. $197,340
d. $307,553

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63. The following inventory information was taken from the records of a foreign corporation whose stock is listed on an
exchange in the U.S.
Historical cost $9,500
Replacement cost $6,000
Expected selling price $7,500
Expected selling cost $0,600
Normal profit margin $2,100
How will income under the U.S. GAAP compare to
income the company reported under IFRS after
reconciliation?
a. Income will not be affected by the
reconciliation.
b. Income under U.S. GAAP will be lower by
$2,500.
c. Income under U.S. GAAP will be lower by
$900.
d. Income under U.S. GAAP will be equal to
income under IFRS.
Use the following to answer question 64 – 65:
The following inventory information above was taken from the records of Kleinfeld Inc.:
Historical cost $12,000
Replacement cost $09,000
Expected selling price $10,000
Expected selling cost $01,000
Normal profit margin $01,000
64. Under IAS 2, what should the Balance Sheet report
for Inventory?
a. $7,000
b. $8,000
c. $8,500
d. $9,000

65. Assume that subsequent to your adjustment the

expected selling price increases to $13,000. (All
the rest of the facts are the same.) What
adjustment to inventory should be made under IAS
2 after this event?
a. Inventory should be increased (debited) by
$3,000.
b. Inventory should be increased (debited) by
$3,500.
c. No adjustment should be made to
inventory once it is written down.
d. Inventory should be increased (debited) by
$1,000.

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Answer Sheet, Final Exam
Please fill out the following with the correct answers. (USE CAPITAL LETTERS)
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

31. 32. 33. 34. 35. 36. 37. 38. 39. 40.

41. 42. 43. 44. 45. 46. 47. 48. 49. 50.

51. 52. 53. 54. 55. 56. 57. 58. 59. 60.

61. 62. 63. 64. 65.

End Final Exam

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