ACCT 425 Exam 1 Questions and Answers Latest Update 2025-2026
. 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 - Answers 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. - Answers b
What is a "greenfield" investment?
a. Farm land held for speculation
b. Foreign direct investment whereby a new facility is constructed abroad
c. Purchasing an existing facility as a foreign direct investment
d.A foreign investment that has been approved by the Environmental Protection Agency -
Answers b
What is KPMG?
a. It is a Dutch manufacturing company with plants in over 50 countries worldwide.
,b. It is an international public accounting firm.
c. It is the largest of the multinational corporations listed on the NYSE.
d. It is a governmental agency whose aim is promoting international business. - Answers b
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?
a. Foreign exchange translation
b. Foreign exchange risk
c. Hedging
d. Foreign currency options - Answers 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 - Answers 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. - Answers 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. - Answers 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. - Answers 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 - Answers 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
. 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 - Answers 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. - Answers b
What is a "greenfield" investment?
a. Farm land held for speculation
b. Foreign direct investment whereby a new facility is constructed abroad
c. Purchasing an existing facility as a foreign direct investment
d.A foreign investment that has been approved by the Environmental Protection Agency -
Answers b
What is KPMG?
a. It is a Dutch manufacturing company with plants in over 50 countries worldwide.
,b. It is an international public accounting firm.
c. It is the largest of the multinational corporations listed on the NYSE.
d. It is a governmental agency whose aim is promoting international business. - Answers b
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?
a. Foreign exchange translation
b. Foreign exchange risk
c. Hedging
d. Foreign currency options - Answers 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 - Answers 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. - Answers 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. - Answers 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. - Answers 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 - Answers 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
