Test Bank for ACCT 4370 - Chapter 1 -
Introduction to International Accounting
6th Edition by Timothy Doupnik
What is the focus of international accounting?
What does the study of international accounting include? - ANS-Includes the study of various
functional areas of accounting
-Focuses on the accounting issues unique to multinational corporations
What are the 3 levels of international accounting with descriptions? - ANS1. General Level
-Study of standards, guidelines and rules of accounting, auditing, and taxation within and across
countries
2. Supranational accounting
-Standards, guidelines, and rules issues by supranational organizations such as IASN< IFAC,
OECD
3. Company level
-Followed by company, specifically related to international business activities and foreign
investments
What are companies usual first encounter with international business?
What are the accounting issues associated with a *sale to a foreign customer*? - ANSFirst
encounter with international business occurs as sales to foreign customers
Credit sales are made to foreign customers who pay in their own currency
-This goes rise to *foreign exchange risk*
Suppose that on February 1, 2018, Magnum., a U.S. company, makes a sale and ships goods
to NMUK, a British customer, for £100,000 (UK).
However, it is agreed that NUMK will pay in Pound Sterling on March 2, 2018.
, The exchange rate as of February 1, 2018 is U.K. £1 = $1.35 dollars.
*How many dollars does NMUK agree to pay?* - ANSEven though NMUK agrees to pay
£100,000 Magnum records the sale in U.S. dollars on February 1, 2018, as follows: [£1 = $1.35]
Suppose that on February 1, 2018, Magnum., a U.S. company, makes a sale and ships goods
to NMUK, a British customer, for £100,000 (UK).
However, it is agreed that NUMK will pay in Pound Sterling on March 2, 2018.
The exchange rate as of February 1, 2018 is U.K. £1 = $1.35 dollars.
*Magnum will receive 100,000 Pound Sterling which are now worth $130,000.*
*How many dollars does NMUK agree to pay?* - ANSDR: Cash 130,000
DR Loss on Foreign Exchange 5,000
CR: Accounts rece 135,000
What are the techniques to manage exposure to hedges of foreign exchange risk? - ANS1.
Foreign currency option
-Right to sell foreign currency at a predetermined exchange rate and time
2. Forward contract
-Obligation to exchange foreign currency at a future date
What is foreign direct investment? - ANSOwnership and control of foreign assets
What are the 2 ways a company can make a *foreign direct investment*? - ANS1. Acquisition
-Investment in existing operations in foreign countries
2. Greenfield investment
-New operation in foreign countries
What are the 7 reasons for foreign direct investment? - ANS1. Increase sales and profits
2. Enter rapidly growing or emerging markets
3. Reduce costs
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