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]
*DR: Accounts rece 135,000
CR: Sales revenue 135,000*
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
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]
*DR: Accounts rece 135,000
CR: Sales revenue 135,000*
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
