WorksheetsInternational Accounting Quiz
Total questions: 47
Worksheet time: 25mins
When a currency is allowed to increase or decrease freely according to market forces, the currency is said to:
be pegged to another currency.
be less valuable.
have independent float.
devalue.
Which financial derivative gives the holder the option to sell the foreign currency?
Call option (buy foreign currency)
Forward option
Spot option
Put option
What is foreign exchange risk exposure?
The possibility of a loss because of changes in the value of a foreign currency
Losses caused by paying for purchased goods in a foreign currency
Losses caused by receiving payment in a foreign currency for goods sold
All of the above
What is a foreign currency transaction?
It is another name for an international transaction.
It is a transaction that involves payment at a date sometime in the future.
It is a business deal denominated in a currency other than a company's domestic currency.
It is an economic event measured in a currency other than U.S. dollars.
The objective of the current rate method when translating financial statements is to:
translate financial statements as if the subsidiary had been using the parent's currency
translate financial statements as if the parent had been using the subsidiary's currency
reflects that the parent's entire investment in a foreign subsidiary is exposed to exchange risk.
None of the above
To calculate U.S. tax, what exchange rate must be used to translate foreign branch net income?
Current rate
Rate at the beginning of the year
Average rate for the year
Rate at the end of the year
Under International Accounting Standards Board rules, what method is required to account for foreign currency transactions?
A one-transaction perspective must be used.
The two-transaction perspective must be used.
A sale is not recorded until payment is received and converted to U.S. dollars.
A sale is not recorded until payment is received in the foreign currency.
Under U.S. tax law, what is a "resident?"
A person living in the United States for 183 days or more in a year
A person holding a "green card" from the U.S. Immigration and Naturalization Service
A corporation organized in the United States
All of the above
There are two primary taxes imposed on profits earned by corporations in international trade. What are they?
Payroll tax and Corporate income tax
Withholding tax and Corporate income tax
Value-added tax and Withholding tax
Value-added tax and Corporate income tax
Which of the following affects the effective corporate tax rate?
Tax-based incentives
Local corporate tax rate
Method of determining taxable income
All of the above
Which of the following is a benefit of tax treaties?
They can be used to define tax jurisdiction.
They may be used to reduce withholding taxes.
They facilitate the exchange of information between countries.
All of the above
Which of the following actions could a company use to hedge balance sheet exposure?
Forward contract on foreign currency
Foreign currency option
Foreign currency borrowing
All of the above may be used to hedge balance sheet exposure.
When a transfer price is set by the management of a parent company rather than by the subsidiary managers, what kind of transfer price is being used?
Market-based transfer price
Negotiated transfer price
Discretionary transfer price
Cost-based transfer price
Which of the following is generally true about the differences between U.S. GAAP and IFRS?
IFRS is more flexible than U.S. GAAP
In all cases, U.S GAAP is more detailed than the IFRS
More professional judgment is required to apply U.S GAAP than is required for implementing IFRS
None of the above
The "price" for using intangible property is called:
interest.
royalty.
rent.
service charge.
The objective of the temporal method when translating financial statements is to:
translate financial statements as if the subsidiary had been using the parent's currency.
translate financial statements as if the parent had been using the subsidiary's currency
reflects that the parent's entire investment in a foreign subsidiary is exposed to exchange risk
None of the above
Foreign currency forward contract gives:
the obligation, but not the right, to exchange foreign currency today.
the obligation, but not the right, to exchange foreign currency at a future date.
the right, but not the obligation, to exchange foreign currency at a future date.
the right, but not the obligation, to exchange foreign currency today.
Which of the following actions could a company use to hedge balance sheet exposure?
Forward contract on foreign currency
Foreign currency option
Foreign currency borrowing
All of the above may be used to hedge balance sheet exposure.
What is a "foreign exchange rate?"
The price to buy foreign goods
The difference between the price of goods in a foreign currency
The cost to hold all monetary assets in a single currency
The price of the domestic currency with respect to another currency
What is a "foreign exchange rate?"
The price to buy foreign goods
The difference between the price of goods in a foreign currency and the price in a domestic currency.
The cost to hold all monetary assets in a single currency
The price of the domestic currency with respect to another currency
Due to change in exchange rate, a U.S. company receives $150,000 as payment against a sale of $165,000. Under the two-transaction perspective:
No journal entry will be prepared on the date of sale.
the sale will be recorded at $150,000 on the date of sale.
foreign exchange loss will be recorded for $15,000.
Accounts Receivable will be debited for $15,000 on the date of payment.
Middleton Corporation is a U.S. company with a branch in France. Income earned by the French branch is taxed at the French corporate income tax rate of 30 percent and at the rate of 35 percent in the United States. What is this an example of?
Capital-export neutrality
Double taxation.
A tax treaty.
Taxation on the basis of consumption.
Which of the following statements is true about the Euro?
It is the currency used by all countries in the European Union.
It is pegged to the U.S. dollar.
It is the currency required to be used in financial reporting under international accounting standards.
None of the statements above is true.
The number of U.S. dollars ($) today to buy one U.K. pound (£) six months from now is called:
the spot rate.
the exact rate.
the forward rate.
the prime rate.
What is a tax haven?
A jurisdiction where taxes are abnormally low
A location where tax cheats live to escape prosecution.
A tax jurisdiction where worldwide tax is eliminated.
Locations that provide tax-based incentives to corporations
What is the term used for intercompany transactions from a subsidiary to a parent?
Upstream transfer
International transfer
Downstream transfer (parent to subsidiary)
None of the above
Which of the following is NOT among the methods that have been used to translate foreign currency financial statements globally?
The non-historic/historic method
The non-monetary/monetary method
The temporal method
The current rate method
When a currency is allowed to increase or decrease freely according to market forces, the currency is said to:
be pegged to another currency.
be less valuable.
have independent float.
devalue.
The "price" for using intangible property is called:
interest.
rent.
royalty.
service charge.
What is a "foreign exchange rate?"
The price of the domestic currency with respect to another currency.
The price to buy foreign goods.
The difference between the price of goods in a foreign currency and the price in a domestic currency.
The cost to hold all monetary assets in a single currency.
Under U.S. GAAP, foreign exchange losses should be recorded by:
debiting "Foreign Exchange Loss".
crediting "Foreign Exchange Loss"
debiting "Retained Earnings".
debiting "Sales Revenue".
The bases for taxation are:
Residence, Citizenship, and Tax Treaty
Source of income, Tax Treaty, and Residence
Citizenship, Source of income, and Residence
Source of income, Citizenship, and Tax Treaty
Which of the following is not a method commonly used for establishing transfer prices?
Industrywide Cost-based transfer price
Negotiated price
Market-based transfer price
Cost-based transfer price
There are two primary taxes imposed on profits earned by corporations in international trade. One is the corporate income tax. What is the other type of tax on the earnings of multinational corporations?
Payroll tax
Excise tax
Withholding tax
Value-added tax
Which of the following is a possible solution for double taxation?
Adoption of the territorial approach
Deduction of taxes
Tax Credit.
All of the above
What is a foreign currency transaction?
It is another name for an international transaction.
It is a transaction that involves payment at a date sometime in the future.
It is a business deal denominated in a currency other than a company's domestic currency.
It is an economic event measured in a currency other than U.S. dollars.
Which of the following statements is true about the Euro?
It is the currency used by all countries in the European Union.
It is pegged to the U.S. dollar.
It is the currency required to be used in financial reporting under international accounting standards.
None of the statements above is true.
What has occurred when one company purchases the right to buy a foreign currency sometime in the future at an exchange rate quoted today?
The company has acquired a call option.
The company has entered a forward contract.
The currency has appreciated relative to the dollar.
The company has acquired a put option.
Companies must choose between which exchange rates for consolidating foreign subsidiaries.
Spot rate and forward rate
Spot rate and closing rate
Current rate and historical rate
Domestic rate and international rate
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?
Average rate
Current rate
Historical rate
Forward rate
When a transfer price is set by the management of a parent company rather than by the subsidiary managers, what kind of transfer price is being used?
Market-based transfer price
Negotiated transfer price
Discretionary transfer price
Cost-based transfer price
What exchange rate should be used to translate the common stock of Essco Ltd, a foreign subsidiary of Peako Corp., when consolidating the financial statements using the current rate method?
Current rate
Historical rate
Average rate
Cannot be determined with the information given
Which of the following methods uses the current exchange rate to consolidate all accounts of a foreign subsidiary into the financial statements of its parent?
Current rate method
Temporal method
Current/noncurrent method
None of the above
Which of the following items is normally translated the same way under both the current rate and temporal methods of translation?
Inventory
Equipment
Sales revenue
Depreciation expense
Poole Corporation is a U.S. company with a branch in China. Income earned by the Chinese branch is taxed at the Chinese corporate income tax rate of 25 percent and at the rate of 35 percent in the United States. What is this an example of?
Capital-export neutrality.
Double taxation.
A tax treaty.
Taxation on the basis of consumption
Purchasing an option to buy foreign currency at a predetermined exchange rate in order to reduce exchange risk is called:
Transfer pricing.
Hedging.
Translating.
Cross-listing.
The monetary amount used to record intercompany transactions is called:
exchange rate
Transfer price
Conversion rate
Incremental cost
