TEST BANK FOR
International Accounting, 6th Edition by Timothy Doupnik
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Chapter 1-12
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Answers Included
Chapter 01 6e
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1) Which of the following groups is a supranational organization?
A) International Accounting Standards Board
B) Organization for Economic Cooperation and Development
C) International Federation of Accountants
D) All of these answers are correct.
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2) Determination of net present value involves:
A) forecasting future profits and cash flows.
B) discounting future cash flows back to their present value.
C) analysis on an after-tax basis.
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D) All of these answers are correct.
3) In which of the following levels can international accounting be defined?
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A) Supranational organizations
B) Company
C) Country
D) All of these answers are correct.
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4) Which of the following functional areas is included in the study of international accounting?
A) Financial accounting
B) Managerial
C) Taxation
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D) All of these answers are correct.
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5) The factor used to convert from one country's currency to another country's currency is called
the:
A) interest rate.
B) cost of capital.
C) exchange rate.
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D) strike price.
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6) What is the term used to describe the possibility that a foreign currency will decrease in U.S.
dollar value over the life of an asset such as Accounts Receivable?
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A) Foreign exchange translation
B) Foreign exchange risk
C) Hedging
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D) Foreign currency options
7) Foreign exchange risk arises when:
A) business transactions are denominated in foreign currencies.
B) sales are made to customers in a domestic country.
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C) goods or services purchased from suppliers in a foreign country are denominated in
domestic currency.
D) auditing reports are prepared in a foreign currency.
8) In international accounting, a "hedge" is:
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A) a business transaction made to reduce the exposure of foreign exchange risk.
B) the legal barriers in various divisions of a multinational company.
C) the loss in US dollar resulting from a decline in the value of the US dollar relative to
foreign currencies.
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D) a form of foreign direct investment.
9) Purchasing an option to buy foreign currency at a predetermined exchange rate in order to
reduce exchange risk is called:
A) transfer pricing.
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B) hedging.
C) translating.
D) cross-listing.
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10) What term is used to describe the process of reducing foreign exchange risk?
A) International accounting
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B) Exposure
C) Hedging
D) Globalization
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11) What is the advantage of foreign direct investment?
A) Helps in retaining advantage over competition
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B) Reduces transportation costs
C) Creates a company tailored to a foreign market's unique characteristics
D) All of these answers are correct.
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12) How should we recognize the difference in the value of a receivable in a foreign currency at
the time it was recorded and the time the cash was received?
A) As an adjustment to stockholders' equity
B) As an adjustment to purchases
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C) As an extraordinary capital expenditure
D) As a prior period adjustment
13) What currency is used in the United Kingdom?
A) Crown
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B) Euro
C) British pound
D) UK dollar
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14) Which of these European countries does NOT use the Euro as its domestic currency?
A) France
B) United Kingdom
C) Ireland
D) The Netherlands
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15) Which of the following terms is used to describe the combining of the financial statements of
all subsidiaries, both foreign and domestic, into the financial statements of the parent?
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A) Convergence
B) Hedging
C) Consolidation
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D) Incorporation
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16) Why is auditing a multinational corporation potentially more difficult than auditing an entity
that has only domestic operations?
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A) Language differences
B) Cultural differences
C) Multiple sets of accounting standards
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D) All of these answers are correct.
17) What is the entry point for most companies into the world of international business?
A) Transfer pricing
B) Exporting
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C) Foreign direct investment
D) Cross-listing on international stock exchanges
18) For a U.S. multinational corporation, consolidating the financial statements of foreign
subsidiaries requires two steps. First, the foreign subsidiary's statements must be restated
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according to the U.S. GAAP. The next step is to:
A) convert the account balances into U.S. dollars.
B) determine the exchange rate gain or loss.
C) calculate the translation adjustment.
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D) restate the income using international accounting standards.
19) When setting transfer prices among international subsidiaries, the corporation must:
A) make sure that the total tax is minimized.
B) ensure that the transfer prices are acceptable to the taxing authorities in the countries
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involved.
C) do whatever it takes to make taxes paid in the United States as low as possible.
D) follow the transfer pricing policy used for domestic transfers.
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20) What is the primary provision of the Foreign Corrupt Practices Act?
A) To specify which corrupt practices are acceptable under U.S. law
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B) To specify how to account for bribes paid by U.S. corporations to obtain business
from foreign governments
C) To inform internal auditors how to detect fraud in multinational corporations
D) To prohibit U.S. companies from paying bribes to foreign government officials to
obtain business
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