Final Exam Flashcards
In preparing consolidated financial statements of a Philippine parent company with a foreign subsidiary, the foreign subsidiary’s functional currency is the currency
a. In which the subsidiary maintains its accounting records.
b. Of the country in which the parent is located.
c. Of the environment in which the subsidiary primarily generates and expends cash.
d. Of the country in which the subsidiary is located.
Of the environment in which the subsidiary primarily generates and expends cash.
In the preparation of a consolidated statements work paper, dividend income recognized by a parent company for dividends distributed by its subsidiary is
a. Included with parent company income from other sources to constitute consolidated net income.
b. Allocated proportionately to consolidated net income and the non-controlling interest.
c. Assigned as a component of the non-controlling interest.
d. Eliminated.
Eliminated.
The Home Office ledger account in the accounting records of a branch is best described as
a. An asset account.
b. A deferred revenue account.
c. A revenue account.
d. An equity account.
An equity account.
Hedging an existing foreign exchange receivable arising from an exporting transaction is a
a. Net investment hedge
b. Cash flow hedge
c. Undesignated hedge
d. Fair value hedge
Fair value hedge
XYZ Agency, a trusted agency of the government, received the following allotment from the Department of Budget and Management: Capital Outlay (CO), Maintenance and Other Operating Expenses (MOOE), Personnel Services (PS); and Financial Expense (FE). The entry to record the receipt of allotment from DBM would be:
a. Debit Cash-Modified Disbursement System; Credit Subsidy from National Government
b. Memorandum entry
c. No entry
d. Debit National Clearing Account; Credit Appropriations Allotted
Memorandum entry
What is the effect of an exchange rate change called in each of the following situations:
a. If the functional currency is the foreign currency, the difference is called a translation adjustment. If the functional currency is the Philippine peso, the difference is called a FX transaction gain or loss.
b. If the functional currency is the foreign currency, the difference is called a FX transaction gain or loss. If the functional currency is the Philippine peso, the difference is called a translation adjustment.
c. If the functional currency is the foreign currency, the difference is called a FX transaction gain or loss. If the functional currency is the Philippine peso, the difference is called a FX transaction gain or loss.
d. If the functional currency is the foreign currency, the difference is called a translation adjustment. If the functional currency is the Philippine peso, the difference is called a translation adjustment.
If the functional currency is the foreign currency (current rate method), the difference is called a translation adjustment.
If the functional currency is the Philippine peso (temporal rate method), the difference is called a FX transaction gain or loss.
Which of the following would explain why the Investment in Branch account is less than the Home Office Capital account?
a. A cash transfer to the branch is in transit.
b. An Inventory shipment to the branch (at cost) is in transit.
c. A home office has received and deposited a remittance from a branch customer but
has not yet notified the branch.
d. A cash transfer to the home office is in transit.
e. None of the above
A cash transfer to the home office is in transit.
At the acquisition date, which of the following is not required to be recognized by the acquirer?
a. Goodwill separately from the identifiable assets acquired.
b. Retained Earnings of the acquiree
c. Liabilities assumed.
d. Non-controlling interest in the acquiree.
Retained Earnings of the acquiree
A domestic company having importing and exporting transactions involving credit and requiring settlement in foreign currency will hope that the direct exchange rate
a. Increases for both types of transactions.
b. Decreases for both types of transactions.
c. Increases for exporting transactions and decreases for importing transactions.
d. Decreases for exporting transactions and increases for importing transactions
INCREASES for exporting transactions and DECREASES for importing transactions.
If the direct exchange rate INCREASES, the Peso is weakening. Therefore, the USD is worth more and a domestic company collects more on account receivables.
55 PHP = 1 USD (direct exchange rate)
0.02 USD = 1 PHP (indirect exchange rate)
Is a hedged instrument a correct term? Is a hedging item a correct term?
a. Yes, Yes
b. No, No
c. Yes, No
d. No, Yes
No, No
The entry to record the receipt of the General Appropriations Act would be:
a. Posting/memo entry
b. Debit Cash-Modified Disbursement System; Credit Subsidy from National Government
c. Debit National Clearing Account; Credit Appropriations Allotted
d. No journal entry
Posting/memo entry
The working paper elimination (in journal entry format) for a second year of intercompany sales made at a markup over subsidiary cost by a partially owned subsidiary to the parent company includes:
a. A credit to Cost of Goods Sold-Subsidiary
b. A credit to Minority Interest in Net Assets of Subsidiary
c. A debit to Retained Earnings-Subsidiary
d. None of the foregoing
A debit to Retained Earnings-Subsidiary
How is the effect of an exchange rate change for the current year reported under the temporal method of translation?
a. As a direct charge or credit to stockholder’s equity.
b. Deferred in the asset or liability section of the balance sheet.
c. Currently in the income statement as an extraordinary item if material.
d. Currently in the income statement.
Currently in the income statement.
Which of the following funds of a nonprofit organization makes periodic payments of a fixed amount at equal intervals?
a. Endowment Fund
b. Agency fund
c. Annuity fund
d. Restricted Fund
Annuity fund
Contributions are reported in the statement of activities using all of the following categories except:
a. Temporarily restricted
b. Board-restricted
c. Permanently restricted
d. Unrestricted
Board-restricted
On October 1, 2020, Velec Co. contracted to purchase foreign goods requiring payment in local currency units (LCU) one month after the receipt of the goods at Velec’s factory. Title to the goods passed on December 15, 2020. The goods were still in transit on December 31, 2020. Exchange rates were one peso to 22 LCUs, 20 LCUs, and 21 LCUs on October 1, December 15, and December 31, 2020, respectively. Velec should account for the exchange rate fluctuations in 2020 as
a. An ordinary gain included in net income.
b. An ordinary loss included in net income.
c. An extraordinary gain.
d. An extraordinary loss.
An ordinary gain included in net income.
Hedging a firm commitment is a
a. Cash flow hedge
b. Fair value hedge
c. Net investment hedge
d. Undesignated hedge
Fair value hedge
A type of hedging where the amounts initially recorded in Other Comprehensive Income is reclassified to earnings when the transaction on the hedged item is reported in earnings.
a. Cash flow hedge
b. Undesignated hedge
c. Fair value hedge
d. Net investment hedge
Cash flow hedge
A comprehensive authority issued to all national government agencies to incur obligations not exceeding an authorized amount during a specified period for the purpose indicated therein, and it covers automatically appropriated expenditures common to most without need of special clearance or approval from competent authority.
a. Notice of Cash Allocation (NCA)
b. Special Allotment Release Order (SARO)
c. Notice of Transfer Allocation (NTA)
d. General Allotment Release Order (GARO)
General Allotment Release Order (GARO)
Which one of the following is not a characteristic associated with intercompany transactions?
a. Gains and losses must be eliminated in the consolidating process.
b. Intercompany transactions must be eliminated in the consolidating process.
c. Transactions that originate with a subsidiary must be eliminated in the consolidating process.
d. Transactions between two subsidiaries to be consolidated with the same parent do not need to be eliminated.
Transactions between two subsidiaries to be consolidated with the same parent do not need to be eliminated.
IFRS/PFRS for SMEs, Section 30, Foreign Currency Translation, provides that a foreign currency transaction shall be recorded on initial recognition in the
a. foreign currency
b. local currency
c. presentation currency
d. functional currency
functional currency
Donated services are recognized as a contribution if:
a. All of the above are correct
b. The organization would otherwise purchase the service.
c. They require specialized skills and the individuals performing the donated service possess those skills.
d. They create or enhance nonfinancial assets
All of the above are correct
a. The organization would otherwise purchase the service.
b. They require specialized skills and the individuals performing the donated service possess those skills.
c. They create or enhance nonfinancial assets
Which one of the following is not a characteristic associated with intercompany transactions?
a. Intercompany transactions must be eliminated in the consolidating process.
b. Transactions that originate with a subsidiary must be eliminated in the consolidating process.
c. Gains and losses must be eliminated in the consolidating process.
d. Transactions between two subsidiaries to be consolidated with the same parent do not need to be eliminated.
Transactions between two subsidiaries to be consolidated with the same parent do not need to be eliminated.
How is the effect of an exchange rate change reported when the current rate method of TRANSLATION is used?
a. Currently, in earnings.
b. In the “owner changes in net assets” section of the statement of comprehensive income.
c. In other comprehensive income.
d. As a deferred gain or loss in the balance sheet.
In other comprehensive income.
Not-for-profit college and university student unions, dormitories, and residence halls are considered
a. Auxiliary enterprises.
b. Independent operations.
c. Education and general services.
d. Restricted enterprises.
Auxiliary enterprises.
For unhedged importing and exporting transactions involving credit and requiring settlement in foreign currency, which of the following dates would never be of concern or have accounting significance?
a. The settlement date.
b. The transaction date.
c. The forward rate date.
d. The intervening financial reporting date(s).
e. None of the above.
The forward rate date.
IAS 21, The Effects of Changes in Foreign Exchange Rates, requires that the initial recognition of a foreign currency transaction be
a. In the amount of the foreign currency
b. the spot rate at the date of the transaction
c. The closing rate at balance sheet date
d. the rate the currency is expected to be exchanged at
the spot rate at the date of the transaction
In a not-for-profit university, the government grants funds given directly to students are an example of
a. A restricted contribution
b. Unrestricted revenue
c. An agency transaction
d. A bequest
An agency transaction
The working paper elimination (in journal entry format) for a second year of intercompany sales made at a markup over subsidiary cost by a partially owned subsidiary to the parent company includes:
a. A credit to Cost of Goods Sold-Subsidiary
b. A credit to Minority Interest in Net Assets of Subsidiary
c. A debit to Retained Earnings-Subsidiary
d. None of the foregoing
A debit to Retained Earnings-Subsidiary
Company P acquired the assets (net of liabilities) of Company S in exchange for cash. The acquisition price exceeds the fair value of the net assets acquired. How should Company P determine the amounts to be reported for the plant and equipment, and for long-term debt of the acquired Company S?
a. PPE at fair value. Long-term debt at S’s carrying amount
b. PPE at fair value. Long-term debt at fair value.
c. PPE at S’s carrying amount. Long-term debt at fair value.
d. PPE at S’s carrying amount. Long-term debt at S’ carrying amount
PPE at FAIR VALUE.
Long-term debt at FAIR VALUE.
Philippine based ABC Corporation has a number of exporting transactions with companies based in Vietnam. Exporting activities result in receivables. If the settlement currency is the US dollar, which of the following will happen by changes in the direct or indirect exchange rates?
a. Direct exchange rate increases = loss; Direct exchange rate decreases = gain; Indirect exchange rate increase = N/A; Indirect exchange rate decreases = N/A
b. Direct exchange rate increases = loss; Direct exchange rate decreases = gain; Indirect exchange rate increase = gain; Indirect exchange rate decreases = loss
c. Direct exchange rate increases = N/A; Direct exchange rate decreases = N/A; Indirect exchange rate increase = N/A; Indirect exchange rate decreases = N/A
d. Direct exchange rate increases = gain; Direct exchange rate decreases = loss; Indirect exchange rate increase = loss; Indirect exchange rate decreases = gain
EXPORTER
Direct exchange rate increases = peso weakens = dollar strengthens = dollars are worth more = dealing with receivables = GAIN
Direct exchange rate decreases = loss
Indirect exchange rate increase = loss
Indirect exchange rate decreases = gain
Income earned from temporary endowments that can be spent on only certain programs, but that has not yet been spent would be reported in the statement of activities in the
a. Temporarily restricted or unrestricted category
b. Temporarily restricted category
c. Unrestricted category
d. Permanently restricted category
Temporarily restricted category
At acquisition date of business combination, an SME shall
a. Recognize goodwill acquired in business combination as an asset and not amortized it.
b. Not recognize goodwill acquired in a business combination.
c. Recognize goodwill acquired in a business combination as an asset, amortize, and test it annually for impairment.
d. Recognize goodwill acquired in business combination and not amortize it but test it annually for impairment
Recognize goodwill acquired in a business combination as an asset, amortize, and test it annually for impairment.
Is the non-controlling interest in net income of a partially owned subsidiary affected by: Elimination of depreciation attributable to intercompany gain on machinery acquired by parent from subsidiary? (upstream) Elimination of intercompany gain on land sold by parent to subsidiary? (downstream)
a. Yes, Yes
b. Yes, No
c. No, Yes
d. No, Yes
Yes, No
Any intercompany gain or loss on a downstream sale of land should be recognized in consolidated net income:
I. In the year of the downstream sale.
II. Over the period of time, the subsidiary uses the land.
III. In the year, the subsidiary sells the land to an unrelated party.
a. I
b. II
c. III
d. I or II
III
Hedging a forecasted transaction is a
a. Undesignated hedge
b. Fair value hedge
c. Net investment hedge
d. Cash flow hedge
Cash flow hedge
Income earned from permanent endowments that can be spent on only certain programs but that has not yet been spent would be reported in the statement of activities in the permanent restricted category. T/F?
FALSE.
temporarily restricted category
A business combination in which a supplier of raw materials is acquired is a conglomerate combination. T/F?
FALSE.
Conglomerate combination is one involving unrelated industries having little, if any, production or market similarities for the purpose of entering into new markets or industries.
On the consolidated balance sheet, consolidated stockholders’ equity is greater than the parent’s stockholder equity. T/F?
FALSE
On the consolidated balance sheet, consolidated stockholders’ equity is equal to the parent’s stockholder equity.
Hedging a domestic company’s budgeted import purchases to the extent of orders placed could be hedges of firm commitments. T/F?
TRUE
If one Taiwanese dollar can be exchanged for P1.025, the fraction for computing indirect quotation of exchange rate expressed in Taiwanese currency is 1.00/0.975. T/F?
FALSE
1/1.025
Upstream sales from the subsidiary to the parent company always result in unrealized gains or losses. T/F?
FALSE
Revenue from exchange transactions in government accounting shall be measured at fair value of the considerations given up. T/F?
FALSE.
FV of considerations received or receivable
Contributions that create term endowments are classified as increasing temporarily restricted net assets T/F?
TRUE
A group is a collection of entities, where one, the parent, controls the activities of the others, its subsidiaries. T/F?
TRUE
When the functional currency is the foreign entity’s currency, exchange rate changes DO NOT have immediate impact on the cash flows of the parent. T/F?
TRUE
Hedging BUDGETED export sales is a hedge of a FIRM COMMITMENT transaction. T/F?
FALSE.
Forecasted transaction
On the financial statements of a not-for-profit, the term “fund balance” has been replaced with the term net equity. T/F?
FALSE
Fund Balance is the term used, not net equity
All foreign exchange forwards are valued using the change in the spot rate. T/F?
FALSE
A domestic importer whose transactions are in foreign currency has risk exposure that the foreign currency will strengthen. T/F?
TRUE
Importer deals with payables. If the foreign currency strengthens, he would have to pay MORE.
The definition of contributions includes both reciprocal and nonreciprocal transfers. T/F?
FALSE.
Contributions are nonreciprocal and unconditional transfers
Tax revenue is derived from exchange transactions. T/F?
FALSE
Assuming that a foreign entity is deemed to be operating in an environment dominated by the local currency (current rate method), the entity’s assets are translated using the historical rate. T/F?
FALSE
Current rate
According to IAS 21, The Effects of Changes in Foreign Exchange Rates, an entity’s noncurrent assets are translated using the closing (current) rate when its functional currency figures are being TRANSLATED into different presentation currency. T/F?
TRUE
For purposes of consolidation, unrealized profits and losses (on inventories and property, plant and equipment) remaining should be eliminated. T/F?
TRUE
Pledges are recorded as revenues when a promise to give is non-revocable and unconditional. T/F?
TRUE
In years subsequent to the year of acquisition, an entry to establish reciprocity is made under the equity method. T/F?
FALSE
Purchasing power parity theory affects the price of a currency in either the short or the long run. T/F?
FALSE
Assuming that a foreign entity is deemed to be operating in an environment dominated by the local currency, the entity’s capital stock is translated using the historical rate. T/F?
TRUE
Intercompany sale of property, plant and equipment from a parent to one of its subsidiaries are referred to as upstream sales. T/F?
FALSE.
Downstream sales
Recognition of revenue from non-exchange transactions by all government agencies shall apply the cash basis of accounting. T/F?
TRUE
Hedging a forecasted transaction is a cash flow hedge. T/F?
TRUE
In a business combination accounted for as purchase, registration fees for equity securities issued should be included in the determination of net income of the combined corporation. T/F?
FALSE
Under the temporal method, monetary assets and liabilities are translated by using the exchange rate existing at the date the transaction occurred. T/F?
FALSE.
Under the temporal method, monetary assets and liabilities are translated by using the CLOSING RATE.
The subjects of government accounting include the national government, local government units, government owned and controlled corporations and NOT-FOR-PROFIT ENTITIES. T/F?
FALSE
Maintenance and other operating expenses (MOOE) includes expenses necessary for the regular operations of the agency like travelling expenses, training and seminar expenses, utilities, and basic pay and allowances of the agency’s personnel. T/F?
TRUE
All foreign exchange forwards are valued using the change in the spot rate. T/F?
FALSE
The Philippine peso is strengthening; as a result, the direct exchange rate will decrease. T/F?
TRUE.
55 PHP = 1 USD (direct exchange rate)
0.02 USD = 1 PHP (indirect exchange rate)
In preparing a combined financial statements, unrealized profits from transactions between a home office and its branch are not necessarily eliminated. T/F?
FALSE
Derivative financial instruments are contracts that create both rights and obligations. T/F?
TRUE
Floating exchange rates are also referred to as ______________________.
FLEXIBLE EXCHANGE RATES
Gains from remeasuring a foreign subsidiary’s financial statements from the local currency, which is not the functional currency, into the parent company’s currency should be recognized as part of _________________________.
Gains from remeasurement are recognized as part of CONTINUING OPERATIONS
The process of expressing amounts stated in one currency in terms of another currency by using appropriate currency exchange rates is ____________________.
TRANSLATION
_____________________ begins with the issuance of a budget call issued by the Department of Budget and Management
BUDGET PREPARATION
Assuming no significant inflation, gains resulting from the process of TRANSLATING a foreign entity’s financial statements from the functional currency to peso (presentation currency) should be recognized as part of _______________.
OCI
A promise to give is a CONTRIBUTION if the promise is ____________________.
UNCONDITIONAL
The actual changing of one currency into another currency is ___________________.
CONVERSION
A commitment that encompasses possible future liabilities based on current contractual agreement
OBLIGATION
The intercompany gain (or loss) is considered to be realized from the use of the property or equipment and it is accomplished through ____________________.
DEPRECIATION ADJUSTMENTS
A specific foreign currency exposure being hedged is commonly called as __________________________.
HEDGED ITEM
An option to sell is referred to as __________________.
PUT OPTION
_________________________ refers to the authorization made by a legislative body to allocate funds for purposes specified by the legislative or similar authority
APPROPRIATION
The financial instrument used to achieve the hedge is commonly called as _____________________.
DERIVATIVES
The process of translating the accounts of a foreign entity into its functional currency when they are stated in another currency is called ___________________.
REMEASUREMENT
___________________ are classified as permanently restricted contributions.
ENDOWMENTS
Cable Tech, a Philippine Corporation, owns 100% of the Canadian Company, Fiber Optic. The Canadian Dollar is the currency of record and the functional currency. What currency exchange rate would be used to translate Fiber Optic’s accounts into pesos? Choose from current, simple average, weighted average, or historical.
Common stock
HISTORICAL
Cable Tech, a Philippine Corporation, owns 100% of the Canadian Company, Fiber Optic. The Canadian Dollar is the currency of record and the functional currency. What currency exchange rate would be used to translate Fiber Optic’s accounts into pesos? Choose from current, simple average, weighted average, or historical. [Current method]
Bonds payable
CURRENT
Cable Tech, a Philippine Corporation, owns 100% of the Canadian Company, Fiber Optic. The Canadian Dollar is the currency of record and the functional currency. What currency exchange rate would be used to translate Fiber Optic’s accounts into pesos? Choose from current, simple average, weighted average, or historical. [Current method]
Land
CURRENT
Cable Tech, a Philippine Corporation, owns 100% of the Canadian Company, Fiber Optic. The Canadian Dollar is the currency of record and the functional currency. What currency exchange rate would be used to translate Fiber Optic’s accounts into pesos? Choose from current, simple average, weighted average, or historical. [Current method]
Sales
WEIGHTED AVERAGE
Cable Tech, a Philippine Corporation, owns 100% of the Canadian Company, Fiber Optic. The Canadian Dollar is the currency of record and the functional currency. What currency exchange rate would be used to translate Fiber Optic’s accounts into pesos? Choose from current, simple average, weighted average, or historical. [Current method]
Prepaid Insurance
CURRENT
Cable Tech, a Philippine Corporation, owns 100% of the Canadian Company, Fiber Optic. The Canadian Dollar is the currency of record and the functional currency. What currency exchange rate would be used to translate Fiber Optic’s accounts into pesos? Choose from current, simple average, weighted average, or historical. [Current method]
Goodwill
CURRENT
Cable Tech, a Philippine Corporation, owns 100% of the Canadian Company, Fiber Optic. The Canadian Dollar is the currency of record and the functional currency. What currency exchange rate would be used to translate Fiber Optic’s accounts into pesos? Choose from current, simple average, weighted average, or historical. [Current method]
Deferred Income Taxes
CURRENT
Cable Tech, a Philippine Corporation, owns 100% of the Canadian Company, Fiber Optic. The Canadian Dollar is the currency of record and the functional currency. What currency exchange rate would be used to translate Fiber Optic’s accounts into pesos? Choose from current, simple average, weighted average, or historical. [Current method]
Allowance for Doubtful Accounts
CURRENT
Hoyle, a Philippine Corporation, owns 100% of Frosan, A French firm. Assume that the peso is the functional currency, although the books are kept in euros. What currency exchange rate would be used to remeasure Frosan’s balance sheet into pesos? Choose from current rate, simple average, weighted average, or historical. [Temporal method]
Bonds Payable
CURRENT
Hoyle, a Philippine Corporation, owns 100% of Frosan, A French firm. Assume that the peso is the functional currency, although the books are kept in euros. What currency exchange rate would be used to remeasure Frosan’s balance sheet into pesos? Choose from current rate, simple average, weighted average, or historical. [Temporal method]
Sales
WEIGHTED AVERAGE
Hoyle, a Philippine Corporation, owns 100% of Frosan, A French firm. Assume that the peso is the functional currency, although the books are kept in euros. What currency exchange rate would be used to remeasure Frosan’s balance sheet into pesos? Choose from current rate, simple average, weighted average, or historical. [Temporal method]
Accounts receivable
CURRENT
Hoyle, a Philippine Corporation, owns 100% of Frosan, A French firm. Assume that the peso is the functional currency, although the books are kept in euros. What currency exchange rate would be used to remeasure Frosan’s balance sheet into pesos? Choose from current rate, simple average, weighted average, or historical. [Temporal method]
Common Stock
HISTORICAL
Hoyle, a Philippine Corporation, owns 100% of Frosan, A French firm. Assume that the peso is the functional currency, although the books are kept in euros. What currency exchange rate would be used to remeasure Frosan’s balance sheet into pesos? Choose from current rate, simple average, weighted average, or historical. [Temporal method]
Accumulated Depreciation
HISTORICAL
Hoyle, a Philippine Corporation, owns 100% of Frosan, A French firm. Assume that the peso is the functional currency, although the books are kept in euros. What currency exchange rate would be used to remeasure Frosan’s balance sheet into pesos? Choose from current rate, simple average, weighted average, or historical. [Temporal method]
Cash
CURRENT
Hoyle, a Philippine Corporation, owns 100% of Frosan, A French firm. Assume that the peso is the functional currency, although the books are kept in euros. What currency exchange rate would be used to remeasure Frosan’s balance sheet into pesos? Choose from current rate, simple average, weighted average, or historical. [Temporal method]
Inventory, carried at cost
CURRENT
Hoyle, a Philippine Corporation, owns 100% of Frosan, A French firm. Assume that the peso is the functional currency, although the books are kept in euros. What currency exchange rate would be used to remeasure Frosan’s balance sheet into pesos? Choose from current rate, simple average, weighted average, or historical. [Temporal method]
Equipment
HISTORICAL
