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Current Topics in Accounting > Topic 1 and Topic 2 > Flashcards

Topic 1 and Topic 2 Flashcards

1
Q

three largest exporters

A

China, U.S., Germany

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2
Q

three largest importers

A

U.S., China, Japan

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3
Q

advantages of global accounting standards

A

Avoids GAAP conversion

Easier to evaluate foreign investment opportunities

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4
Q

what gives rise to foreign exchange risk

A

Credit sales are made to foreign customers who will pay in their own currency

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5
Q

foreign currency option

A

Right to sell foreign currency at a predetermined exchange rate and time

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6
Q

forward contract

A

Obligation to exchange foreign currency at a future date

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7
Q

objectives of international income taxation

A

Legally minimize taxes in foreign countries and home country

Maximize after-tax cash flows

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8
Q

issues in evaluation of foreign operations

A

Translation from one currency to another

Inflated price paid in transfer pricing

Issues unique to foreign operations

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9
Q

issues faced by internal and external auditors

A

Differences in language and culture

Differences accounting standards and auditing standards

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10
Q

cross-listing

A

stock listed and traded on several foreign stock exchanges

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11
Q

issue with cross-listing on foreign stock exchanges

A

Listing regulations differ for foreign companies

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12
Q

independent float

A

the currency is allowed to fluctuate according to market forces

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13
Q

pegged to another currency

A

the currency’s value is fixed in terms of a particular foreign currency, and the central bank will intervene to maintain the fixed value

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14
Q

european monetary system

A

a common currency (the euro) is used in multiple countries. Its value floats against other world currencies

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15
Q

exchange rate

A

the cost of one currency in terms of another

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16
Q

spread

A

The difference between the rates at which a bank is willing to buy and sell currency

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17
Q

spot rate

A

The exchange rate that is available today

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18
Q

forward rate

A

The exchange rate that can be locked in today for an expected future exchange transaction

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19
Q

forward contract

A

requires the purchase (or sale) of currency units at a future date at the contracted exchange rate

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20
Q

options contract

A

gives the holder the option of buying (or selling) currency units at a future date at the contracted “strike” price

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21
Q

put option

A

allows for the sale of foreign currency by the option holder

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22
Q

call option

A

allows for the purchase of foreign currency by the option holder

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23
Q

foreign trade

A

A U.S. company buys or sells goods or services to a party in another country

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24
Q

journal entry for sale

A

Dr. Accounts Receivable
Cr. Sales Revenue

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25
Q

journal entry for purchase

A

Dr. Asset/Supplies/Inventory
Cr. A/P

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26
Q

who is the one-transaction perspective allowable for

A

not GAAP or IFRS

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27
Q

two-transaction approach

A

Account for the original sale in US Dollars at date of sale. No subsequent adjustments are required.

Changes in the U.S. dollar value of the foreign currency are accounted for as gains/losses from exchange rate fluctuations reported separately from sales in the income statement

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28
Q

Export sale, Foreign currency appreciates, gain

A

SAG

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29
Q

Import purchase, foreign currency appreciates, loss

A

PAL

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30
Q

Which of the following combinations correctly describes the relationship between foreign currency transactions, exchange rate changes, and foreign exchange gains and losses?

a. Export sale, appreciates, loss
b. import purchase, appreciates, gain
c. import purchase, depreciates, gain
d. export sale, depreciates, gain

A

c. import purchase, depreciates, gain

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31
Q

Gracie Corporation had a Japanese yen receivable resulting from exports to Japan and a Brazilian real payable resulting from imports from Brazil. Gracie recorded foreign exchange gains related to both its yen receivable and real payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?

a. Yen: increase, Real: increase
b. decrease, decrease
c. decrease, increase
d. increase, decrease

A

d. increase, decrease

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32
Q

In accounting for foreign currency transactions, which of the following approaches is used in the U.S?

One-transaction perspective, accrue foreign exchange gains and losses

One-transaction perspective, defer foreign exchange gains and losses

Two-transaction perspective, defer foreign exchange gains and losses

Two-transaction perspective, accrue foreign exchange gains and losses

A

Two-transaction perspective, accrue foreign exchange gains and losses

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33
Q

On October 1, 2023, Mud Company (a US company) purchased parts from Terra (a Portuguese company) with payment due on December 1, 2023. If Mud’s 2023 operating income includes no foreign exchange gain or loss, the transaction could have

generated a foreign exchange loss to be reported as a separate component of stockholders’ equity.

b. been denominated in U.S. dollars.

c. resulted in an extraordinary gain.

d. generated a foreign exchange gain to be reported as a deferred charge on the balance sheet.

A

b. been denominated in U.S. dollars

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34
Q

accounting for unrealized gains and losses

A
  1. deferral approach
  2. accrual approach (required by u.s. gaap)
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35
Q

deferral approach

A

Gains and losses are deferred on the balance sheet until cash is paid or received and a realized foreign exchange gain or loss is included in income when paid

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36
Q

accrual approach

A

Unrealized foreign exchange gains and losses are reported in net income in the period in which the exchange rate changes

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37
Q

Post, Inc. had a receivable from a foreign customer that is payable in the customer’s local currency. The original receivable was posted at $120,000. On December 31, 2023, Post correctly included this receivable for 200,000 local currency in its balance sheet at $110,000. When Post collected the receivable on February 15, 2024, the U.S. dollar equivalent was $95,000. In Post’s 2024 income statement, how much should it report as a foreign exchange gain or loss?

A

$15,000, $10,000 for 2023

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38
Q

On July 1, 2023, Houghton Company borrowed 200,000 euros from a foreign lender evidenced by an interest-bearing note due on July 1, 2024. The note is denominated in euros. The U.S. dollar equivalent of the note principal is as follows:

July 1, 2023 $195,000
December 31, 2023 (Houghton’s FYE) $220,000
July 1, 2024 $230,000

In its 2024 income statement, what amount should Houghton include as a foreign exchange gain or loss on the note?

A

$10,000, $25,000 2023

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39
Q

types of differences between IFRS and U.S. GAAP

A

Definition differences

Recognition differences

Measurement differences

Alternatives

Lack of requirements or guidance

Presentation differences

Disclosure differences

40
Q

which standard setter is more flexible

A

IFRS

41
Q

which standard-setter generally has less bright-line guidance

A

IFRS

42
Q

Which standard setter is a principles-based accounting system

A

IFRS

43
Q

Which standard setter is a rules-based system

A

GAAP

44
Q

which standard setter provides more extensive guidance for inventories

A

IFRS

45
Q

what do cost of inventories include

A

Costs of purchase
Costs of conversion
Other costs

design, interest if takes time to bring to saleable condition

46
Q

what is not normally included in the cost of inventories for GAAP

A

interest

47
Q

what does the cost of inventories exclude

A

Abnormal waste
Storage unless necessary for the production process
Administrative overhead
Selling costs

48
Q

what inventory method does IAS 2 not allow

A

LIFO

49
Q

what does IAS 2 require inventories to be reported at

A

lower or cost or net realizable value (NRV)

50
Q

net realizable value (NRV)

A

selling price - est cost to completion - est cost to sell

51
Q

when do we derecognize PPE

A

When asset is disposed

When no future economic benefits are expected

Same for both standards

52
Q

impairment under IAS 36

A

carrying amount > recoverable amount

53
Q

recoverable amount

A

the greater of net selling price and present value of future net cash flows

54
Q

which standard setter is impairment more likely under

A

IFRS since discounted cash flows are used

55
Q

when should impairment loss be reversed under IFRS

A

when recoverable amount exceeds new carrying amount:

if changes in estimates used to determine original impairment loss or change in how recoverable amount is determined

56
Q

how much can a reversal be for

A

up to the original carrying amount

57
Q

when and where is the reversal recognized

A

in income immediately

58
Q

does us gaap allow for reversal

A

no

59
Q

intangible asset

A

identifiable, nonmonetary asset without physical substance:

Held for production of goods or services, rental to others, or for administrative purposes

Controlled by enterprise as result of past events from which future economic benefits are expected to be realized

60
Q

does ifrs or gaap want capitalization

A

ifrs

61
Q

IAS 1, Presentation of Financial Statements, requires

A

classification of liabilities: current and noncurrent

62
Q

current liabilities

A

Expected to settle in normal operating cycle

Held primarily for purpose of trading

Settled within 12 months of balance sheet date

No right to defer until 12 months after balance sheet date

Same for both standard setters

63
Q

refinanced short-term debt ifrs

A

Long-term, if refinanced prior to balance sheet date

64
Q

refinanced short-term debt u.s. gaap

A

Long-term, if refinancing is agreed prior to balance sheet being issued

65
Q

bank overdrafts ifrs

A

Long-term, if integral part of cash management netted against cash

66
Q

bank overdrafts u.s. gaap

A

Always treated as
current liabilities

67
Q

5 steps in recognition of revenue

A

Identify contract with a customer

Identify the separate performance obligations in the contract

Determine the transaction price

Allocate the transaction price to the separate performance obligations

Recognize the revenue allocated to each performance obligation when the entity satisfies each performance obligation

68
Q

journal entry to record revenue from a new contract

A

Dr. Cash
Cr. Sales Revenue
Cr. Deferred Revenue

69
Q

IFRS 15

A

award credits should be treated as a separately identifiable component of the sales transaction in which they are granted (airline ticket sales and points awarded)

Revenue allocated between awards credit and current sale

70
Q

IAS 7, Statement of Cash Flows

A

Classified as operating, investing or financing

Operating cash flows may use direct or indirect method

71
Q

Exchange rates have not always fluctuated. During the period 1945-1973, countries fixed their currency in terms of the U.S. dollar, and the value of the U.S. dollar was based in terms of what?

A

The Gold Standard

72
Q

What are the two (2) most popular websites that publish exchange rates?

A

oanda.com and x-rate.com

73
Q

T or F: The one-transaction perspective is allowable per GAAP and IFRS

A

F

74
Q

If a foreign exchange transaction is an import purchase and the foreign currency appreciates, the result is a foreign exchange ________ (gain or loss). What is the mnemonic for this transaction?

A

Loss, PAL

75
Q

The options contract gives the options holder this price to buy or sell foreign currency at a future date. In other words, this contracted price is the exchange rate to be exercised if the option holder decides to exercise the option

“call” option
“spot” rate
“strike” price
“forward” rate
“put” price

A

“strike” price

76
Q

the forward rate may be defined as:

the price a foreign currency can be purchased or sold today

the u.s. dollar value of a foreign currency

the price today at which a foreign currency can be purchased or sold in the future

the euro value of a foreign currency

the forecasted future value of a foreign currency

A

the price today at which a foreign currency can be purchased or sold in the future

77
Q

As a rule of thumb, who is more flexible in setting standards? (IFRS or U.S. GAAP)

A

IFRS

78
Q

IAS 16, Property, Plant and Equipment (PPE), allows companies to choose between the historical cost method and the revaluation (fair value) method for initial recognition of an asset. Which method is not permitted under U.S. GAAP? (historical cost method or revaluation method)

A

revaluation method

79
Q

Bank overdrafts are always classified as current liabilities under IFRS.

A

false

80
Q

IFRS 15, Revenue Recognition, is equivalent to the US GAAP standard ASC 606. Both standards include how many steps in the recognition of revenue?

A

5

81
Q

Under IFRS and the Statement of Cash Flows, interest and dividends paid may be classified as either an operating or financing activity

A

Yes

82
Q

for the statement of cash flows, ____ requires interest paid and received and dividends received to be classified as operating; dividends paid must be classified as financing. ____ allows interest paid

A

IFRS, U.S. GAAP

83
Q

Bank overdrafts are netted against cash rather than being recognized as a liability when overdrafts are a normal part of cash management

A

IFRS

84
Q

Inventory is reported on the balance sheet using the last-in, first-out (LIFO) cost flow assumption

A

U.S. GAAP

85
Q

A company writes a fixed asset down to its recoverable amount and recognizes an impairment loss in Year 1. In a subsequent year, the recoverable amount is determined to exceed the asset’s carrying amount, and the previously recognized impairment loss is reversed

A

IFRS

86
Q

A company that accounts for inventory using first-in, first-out (FIFO) records a write-down of a product line to its net realizable value

A

Both

87
Q

A manufacturer capitalizes development costs for an industrial product when certain criteria are met

A

IFRS

88
Q

For customer loyalty programs (i.e. frequent flyer points), award credits should be treated as a separately identifiable component of the sales transaction for revenue recognition. The award credits will most likely be classified as deferred revenue when granted to a customer.

A

Both

89
Q

in what way does IAS 16 (property, plant and equipment) differ from U.S. GAAP concerning fixed asset measurement subsequent to initial recognition?

IAS 16 allows for upward revaluation of the asset based on fair value

IAS 16 does not allow accumulated depreciation to be shown on the balance sheet

IAS 16 requires that fixed assets be carried at fair value less accumulated impairment losses

IAS 16 allows both upward and downward revaluation of fixed assets, whereas U.S. GAAP only allows upward revaluation

A

IAS 16 allows for upward revaluation of the asset based on fair value

90
Q

Fill in the blanks: IAS 16, Property, Plant and Equipment (PPE), allows companies to choose between the historical cost method and the ____ method for initial recognition of an asset. U.S. GAAP ____ allow for both methods

revaluation (fair value), does

future value, does not

revaluation (fair value), does not

future value, does

A

revaluation (fair value), does not

91
Q

Which of the following inventory valuation methods, used under the U.S. GAAP, is NOT allowed under IAS 2 (Inventories)

LIFO

FIFO

Retail inventory method

Weighted Average

A

LIFO

92
Q

Under IAS 2, what adjustment needs to be made after an inventory write-down if the selling price subsequently increases?

No adjustment is necessary. Once inventory is written down, it cannot be increased under IASB standards

U.S. GAAP does not allow capitalization of development costs, whereas IAS 38 allows capitalization of these costs

U.S. GAAP treats development costs as part of “Goodwill,” whereas IAS 38 treats these costs as an intangible asset

U.S. GAAP requires capitalization of development costs, whereas IAS 38 makes capitalization of these costs optional

A

U.S. GAAP does not allow capitalization of development costs, whereas IAS 38 allows capitalization of these costs

93
Q

Which companies are required to apply IFRS?

All companies in the world

All companies in the EU

Publicly listed companies in over 120 countries

All companies in the U.S.

A

Publicly listed companies in over 120 countries

94
Q

Under IFRS and on the Statement of Cash Flows, interest and dividends paid are classified as:

operating or financing activities

operating activities

investing activities

financing activities

A

operating or financing activities

95
Q

Under U.S. GAAP, bank overdrafts are always treated as current liabilities

A

true

96
Q
A

Current Topics in Accounting (5 decks)

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