ACCT 425 EXAM 1 QUESTIONS & ANSWERS
Foreign companies that are listed on the New York Stock Exchange (NYSE) and
following their domestic GAAP must report their income in terms of:
a. the International Accounting Standards.
b. the GAAP of their home country.
c. the GAAP of the United States.
d. All of the above - Answer -c
not foreign companies using IFRS
. The ownership and control of foreign assets, such as a manufacturing plant, is called:
a. a hedge.
b. foreign direct investment.
c. an option.
d. derivatives. - Answer -b
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?
a. Convergence
b. Hedging
c. Consolidation
d. Incorporation - Answer -c
Assume that ABCO is a U.S. multinational corporation. Its foreign subsidiaries must
report income in their respective countries according to GAAP in those countries. How
must ABCO report its consolidated financial statements?
a. ABCO must choose any one country's accounting standards and combine the
subsidiary reports into the parent company's statements using that one country's GAAP.
b. Since the company is operating in several different countries, the International
Accounting Standards must be used for the consolidated financial statements.
c. Since ABCO is a U.S. corporation, U.S. generally accepted accounting principles, or
GAAP, must be used for the consolidated financial statements.
d. On the consolidated financial statements, each subsidiary's financial results must be
shown in the currency of the country where the subsidiary is located. - Answer -c
. ABCO Corporation has its two wholly owned subsidiaries, Delta and Parry, in Country
A and Country B, respectively. Parry purchases a part for its production from Delta.
Country B has a higher tax rate than Country A. To minimize the corporation's overall
income tax, how should ABCO set its transfer prices between its subsidiaries?
, a. Delta should sell parts to Parry at low prices.
b. Delta should sell parts to Parry at high prices.
c. It doesn't matter what transfer price is used because the subsidiaries are part of the
same company.
d. Transfer pricing does not affect the total tax paid by the corporation. - Answer -b
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
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. - Answer -b
Which of the following ratios is used in the calculation of the multinationality index
(MNI)?
a. Foreign working capital to total working capital
b. Foreign cash to total cash
c. Foreign employment to total employment
d. Foreign loans to total loans - Answer -c
As per U.S. corporate tax laws, which of the following statements is true of a company
that is incorporated in the U.S. and has a branch in a foreign country?
a. The credit for the amount of taxes already paid is given to arrange for double
taxation.
b. The credit for the amount of taxes already paid is given to charge for the taxes not
paid in the home country.
c. The credit for the amount of taxes already paid is given to refund the taxes already
paid in the home country.
d. The credit for the amount of taxes already paid is given to give relief for the taxes
paid in the foreign country. - Answer -d
When a foreign subsidiary pays dividends to its U.S. parent, this process is known as:
a. repatriation.
b. the reverse authoritative principle.
c. income-splitting.
d. asset management. - Answer -a
What is the equivalent of the common stock account on a U.S. balance sheet on the
balance sheet of a British company?
a. Capital redemption reserve
Foreign companies that are listed on the New York Stock Exchange (NYSE) and
following their domestic GAAP must report their income in terms of:
a. the International Accounting Standards.
b. the GAAP of their home country.
c. the GAAP of the United States.
d. All of the above - Answer -c
not foreign companies using IFRS
. The ownership and control of foreign assets, such as a manufacturing plant, is called:
a. a hedge.
b. foreign direct investment.
c. an option.
d. derivatives. - Answer -b
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?
a. Convergence
b. Hedging
c. Consolidation
d. Incorporation - Answer -c
Assume that ABCO is a U.S. multinational corporation. Its foreign subsidiaries must
report income in their respective countries according to GAAP in those countries. How
must ABCO report its consolidated financial statements?
a. ABCO must choose any one country's accounting standards and combine the
subsidiary reports into the parent company's statements using that one country's GAAP.
b. Since the company is operating in several different countries, the International
Accounting Standards must be used for the consolidated financial statements.
c. Since ABCO is a U.S. corporation, U.S. generally accepted accounting principles, or
GAAP, must be used for the consolidated financial statements.
d. On the consolidated financial statements, each subsidiary's financial results must be
shown in the currency of the country where the subsidiary is located. - Answer -c
. ABCO Corporation has its two wholly owned subsidiaries, Delta and Parry, in Country
A and Country B, respectively. Parry purchases a part for its production from Delta.
Country B has a higher tax rate than Country A. To minimize the corporation's overall
income tax, how should ABCO set its transfer prices between its subsidiaries?
, a. Delta should sell parts to Parry at low prices.
b. Delta should sell parts to Parry at high prices.
c. It doesn't matter what transfer price is used because the subsidiaries are part of the
same company.
d. Transfer pricing does not affect the total tax paid by the corporation. - Answer -b
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
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. - Answer -b
Which of the following ratios is used in the calculation of the multinationality index
(MNI)?
a. Foreign working capital to total working capital
b. Foreign cash to total cash
c. Foreign employment to total employment
d. Foreign loans to total loans - Answer -c
As per U.S. corporate tax laws, which of the following statements is true of a company
that is incorporated in the U.S. and has a branch in a foreign country?
a. The credit for the amount of taxes already paid is given to arrange for double
taxation.
b. The credit for the amount of taxes already paid is given to charge for the taxes not
paid in the home country.
c. The credit for the amount of taxes already paid is given to refund the taxes already
paid in the home country.
d. The credit for the amount of taxes already paid is given to give relief for the taxes
paid in the foreign country. - Answer -d
When a foreign subsidiary pays dividends to its U.S. parent, this process is known as:
a. repatriation.
b. the reverse authoritative principle.
c. income-splitting.
d. asset management. - Answer -a
What is the equivalent of the common stock account on a U.S. balance sheet on the
balance sheet of a British company?
a. Capital redemption reserve
