MULTIPLE CHOICE
1.Which of the following standard-setting bodies was the first to address translation of foreign-based operations and holdings into U.S. dollars?
a.CAP
b.APB
c.FASB
d.SEC
2.Which of the following does not apply to the Bretton Woods Agreement of 1944?
a.The developments surrounding the agreement have heightened the importance of how translation of foreign-based operations should be handled.
b.It established controlled exchange rates worldwide.
c.It allowed monetary authorities to buy or sell gold or foreign exchange with the intent of maintaining an allowable exchange rate fluctuation.
d.It collapsed in 1971 resulting in freer and more volatile exchange rate fluctuations.
3.Which of the following applies to the U.S. dollar orientation approach to the translation of foreign operations?
a.It requires an enterprise to account for foreign operations as if those operations actually occurred in U.S. dollars.
b.It recognizes that the foreign operations occurred in a foreign currency and that those operations may not affect U.S. dollars.
c.Foreign currency denominated assets, liabilities, revenues, and expenses are assumed to be measured in the foreign currency but are translated to U.S. dollars for reporting purposes.
d.The effects of changing exchange rates are not reported in income until the net assets are exchanged.
4.Which of the following is not a true statement regarding SFAS No. 8?
a.SFAS was faithful to the historical cost accounting model, but from an economic viewpoint it produced illogical results.
b.SFAS No. 8 required the temporal method of translation.
c.In empirical studies made of the economic impact of SFAS No. 8 on American multinational enterprises, only foreign exchange risk and management policies regarding hedging of foreign currency exposures were found to have any possible impact.
d.SFAS No. 8 was consistent with the foreign currency orientation.
5.Accounting exposure is:
a.The exposure to exchange gains and losses resulting from translating U.S.-dollar-denominated financial statements into foreign denominations.
b.The exposure to exchange gains and losses resulting from translating foreign-currency-denominated financial statements into U.S. dollars.
c.The exposure to cash flow changes resulting from dealings in foreign-denominated transactions and commitments.
d.A result of the need to use more U.S. dollars to settle a foreign-currency- denominated debt.
6.Economic exposure is:
a.The exposure to exchange gains and losses resulting from translating U.S.-dollar-denominated financial statement into foreign denominations.
b.The exposure to exchange gains and losses resulting from translating foreign-currency-denominated financial statements into U.S. dollars.
c.The exposure to cash flow changes resulting from dealings in foreign-denominated transactions and commitments.
d.A result of the need to use more foreign currency to settle U.S. dollar denominated debt.
7.With the temporal method of translation:
a.All balance sheet items that are carried at current or future exchange prices are translated at the current exchange rate.
b.Balance sheet items carried at past prices, such as fixed assets are translated at the current exchange rate.
c.Income statement items are translated at the current exchange rate.
d.Income statement items are translated at historical exchange rates.
8.Which of the following directly affects consolidated cash flows?
a.Accounting exposure
b.Economic exposure
c.Both accounting exposure and economic exposure
d.Neither accounting exposure nor economic exposure
9.SFAS No. 52 adopted:
a.A U.S. dollar orientation to accounting for foreign currency operations.
b.A functional currency orientation to accounting for foreign currency operations.
c.A foreign currency orientation to accounting for foreign currency operations.
d.None of the above
10.What is the objective of translation under SFAS No. 52?
a.To avoid reporting accounting exchange gains and losses when an economic gain or loss has not occurred.
b.To avoid reporting foreign-currency-denominated operations as if they had occurred in U.S. dollars.
c.To maintain a U.S. dollar orientation.
d.Both a and b
11.Which of the following is a true statement regarding SFAS No. 52?
a.When a foreign entity’s currency is the functional currency, net income is measured in the foreign currency and then restated into dollars at the current exchange rate at the end of the period.
b.When a foreign entity’s currency is the functional currency, any exchange adjustment resulting from translating balance sheet and income statement items at different exchange rates is recognized as a gain or loss on the income statement.
c.When a foreign entity’s currency is the functional currency, all balance sheet items are translated at the average exchange rate for the period.
d.If the results of foreign-currency-denominated operations will not affect U.S. dollar cash flows, no exchange gain or loss is recorded.
12.Which of the following is not a true statement regarding SFAS No. 52?
a.The key question brought up in SFAS No. 52 involves how to report exchange gains and losses on the income statement.
b.The six guidelines or economic factors provided by SFAS No. 52 for determining the functional currency have a differential cash flow orientation.
c.The six indicators provided by SFAS No. 52 have been found to provide adequate guidance for determining the functional currency.
d.The six indicators provided by SFAS No. 52 for determining the functional currency have a foreign currency component and a parent’s currency component.
13.Which of the following if not one of the six guidelines or economic factors provided by SFAS No. 52 for determining the functional currency?
a.Sales price indicators
b.Interest rate indicators
c.Expense indicators
d.Intercompany transactions and arrangements
14.Which of the following is not true if the functional currency of a foreign operation is U.S. dollars?
a.All balance sheet items that were carried at current or future exchange prices are translated at the current exchange rate.
b.All balance sheet items carried at past prices are translated at exchange rates existing at the time the item was acquired.
c.All income statement items are translated at the average exchange rate for the reporting period.
d.Exchange gains and losses arising from translation from the currency of record into the functional currency are recognized on the income statement.
15.What is meant by the term “functional currency”?
a.The functional currency is the currency of the parent corporation.
b.The functional currency is the currency of the country in which the foreign subsidiary is located.
c.The functional currency is the currency of the parent’s primary economic environment where cash is primarily received and spent.
d.The functional currency is the currency of the subsidiary’s primary economic environment where cash is primarily received and spent.
16.Which of the following is a financial reporting model that features the presence of a strong accounting profession?
a.The Anglo-American model
b.The continental model
c.The oriental model
d.The international model
17.The United States is an example of
a.The Anglo-American model
b.The continental model
c.The oriental model
d.The international model
18.Which of the following is not one of Mueller’s four economic/political/professional dimensions to accounting development?
a.The macroeconomic pattern
b.The microeconomic pattern
c.The independent discipline approach
d.The diversified accounting approach
19.The United States is best described as belonging to which dimension of accounting development?
a.The macroeconomic pattern
b.The microeconomic pattern
c.The independent discipline approach
d.The diversified accounting approach
20.Anglo-American versus continental differences have been summarized using all but which of the following characteristics?
a.Strength of the accounting profession
b.Population size
c.Strong equity markets as opposed to credit financing from major banking institutions
d.The importance of the country’s legal system relative to the setting of accounting rules
21.Which of the following is not one of Hofstede’s cultural dimensions of national accounting differences?
a.Developed versus developing
b.Large versus small power distance
c.Masculinity versus femininity
d.Individualism versus collectivism
22.Which of the following is not a true statement regarding harmonization of accounting standards?
a.Harmonization refers to the degree of coordination of similarity among the various sets of national accounting standards and methods and the formats of financial reporting.
b.Among the factors underlying the desire for harmonization is the rise in importance of the multinational firm.
c.The issue of harmonization is closely tied to the efforts of the IASC as well as activities of the EU.
d.Many continental model countries, such as France and Germany, have viewed harmonization as an opportunity to coordinate their accounting standards with those of the United States.
23.Which of the following is not a true statement regarding the IASC?
a.The IASC has recently promulgated a conceptual framework.
b.The IASC is playing an important role in the drive toward harmonization.
c.Several European nations have surrendered their standard-setting powers to the IASC.
d.Members of the IASC have pledged to use their best endeavors to bring the adoption of IASC standards to their countries.
24.Which of the following organizations was formed in an attempt at economic integration, and has also been concerned with harmonization of accounting standard of its member nations?
a.The International Accounting Standards Committee
b.The International Federation of Accountants
c.The European Union
d.The International Organization of Security Commissions
25.Which of the following is not a member of the G4+1.
a.IASC
b.Australia
c.United States
d.France