Question 1

Which of the following statements holds true for accounting standards?

Accepted Answer

Accounting standards are essentially a system of rules and principles designed to govern the format and content of financial statements, ensuring consistency, reliability, and comparability of financial reporting across different entities.

Question 2

Which of the following statements holds true for generally accepted accounting principles (GAAP)?

Accepted Answer

GAAP refers to the set of accounting principles, standards, and procedures that companies use to compile their financial statements in the United States. It is developed by the Financial Accounting Standards Board (FASB).

Question 3

The _____ is the major entity proposing international standards of accounting and was formerly known as the International Accounting Standards Committee (IASC).

Accepted Answer

The International Accounting Standards Board (IASB) is the major entity responsible for proposing international standards of accounting. It was formerly known as the International Accounting Standards Committee (IASC) before it was restructured in 2001.

Question 4

In 2006, China revised its law and moved towardsChinese accounting standards which are more in line with IASB.

Accepted Answer

In 2006, China indeed revised its accounting standards, moving towards Chinese accounting standards that are more closely aligned with those of the International Accounting Standards Board (IASB), aiming to improve transparency and comparability with international practices.

Question 5

_____ refers to a method of foreign currency translation that uses exchange rates based on the rate at which the assets and liabilities were originally acquired or incurred.

Accepted Answer

The temporal method of foreign currency translation uses historical exchange rates for translating the financial statements of a foreign entity. This method applies the exchange rates at the dates of the original transactions for assets, liabilities, revenues, and expenses.

Question 6

An Indonesian importer needs U.S.dollars to pay for the shipment that he has just received.He will have to purchase the dollars to pay for the shipment.He exchanges rupiah for U.S.dollars which he pays to the foreign exporter.The rate at which he buys US dollars in the market is known as the _____.

Accepted Answer

The rate at which currencies are exchanged for immediate delivery is known as the spot exchange rate. In this scenario, the Indonesian importer needs to exchange rupiah for U.S. dollars immediately to pay for the shipment, making the spot exchange rate the correct term.

Question 7

Which of the following statements holds true for a forward contract?

Accepted Answer

E) It refers to an agreement in which a firm agrees to pay a specific rate at the beginning of the contract for delivery at a future date. This statement accurately describes a forward contract, which is a financial derivative tool used to hedge against future price movements.

Question 8

Subsidiaries purchase assets at different times throughout the year and therefore the balance sheet of a multinational firm may not balance if the current-rate method is used.

Accepted Answer

The current-rate method converts all foreign currency balance sheet items at the current exchange rate at the balance sheet date, ensuring the balance sheet balances by adjusting shareholders' equity for translation adjustments.

Question 9

In which of the following countries is the use of the international financial reporting standards (IFRS)not mandatory?

Accepted Answer

The United States of America does not mandate the use of International Financial Reporting Standards (IFRS) for domestic companies. Instead, U.S. companies use Generally Accepted Accounting Principles (GAAP) set by the Financial Accounting Standards Board (FASB).

Question 10

The Indian subsidiary of a US-based MNC purchased three Caterpillars for its mining work.At the end of the financial year, the financial statements of the subsidiaries need to be translated into the currency of the parent corporation.When the Caterpillars were purchased, the exchange rate was 50 INR= 1USD.The present exchange rate is 60 INR= 1USD.The financial statement of the Indian subsidiary is translated into the currency of the parent corporation at the exchange rate of 60 INR= 1USD.The above serves as an example of the _____ of foreign-currency translation.

Accepted Answer

The current-rate method is used for translating the financial statements of a subsidiary into the parent company's currency using the exchange rate at the balance sheet date, which is the scenario described.

Question 11

Which of the following statements holds true for international financial reporting standards (IFRS)?

Accepted Answer

International Financial Reporting Standards (IFRS) are indeed developed by the International Accounting Standards Board (IASB) and are used by companies across the globe for financial reporting.

Question 12

An organization wants to raise cash in order to fund its expansion plans.The company that currently has 500,000 ordinary shares decides to issue 125,000 new shares to raise cash.The above is an example of:

Accepted Answer

Issuing new shares to raise cash is an example of equity financing, where a company sells shares of its stock to investors to obtain the funds needed for expansion or other projects. This increases the company's share capital without incurring debt.

Question 13

Which of the following statements about the GAAP rules and IFRS is true?

Accepted Answer

Adhering to both US GAAP and IFRS can indeed create additional work for multinational companies, as they may need to prepare separate financial statements to comply with the accounting standards applicable in different jurisdictions.

Question 14

Which of the following statements holds true for a consolidated financial statement?

Accepted Answer

Consolidated financial statements combine the financial statements of a parent company and its subsidiaries, presenting them as if they were a single entity. This allows for a comprehensive view of the financial status of the entire group of companies.

Question 15

_____ refers to a method of foreign currency translation in which items in the subsidiaries' financial statements are translated at the current exchange rate into the currency of the parent corporation.

Accepted Answer

The current-rate method involves translating all items in the subsidiaries' financial statements at the current exchange rate into the currency of the parent corporation.

Question 16

A company needs to buy US dollars in 90 days time.Therefore it signs a contract with a US bank to buy US dollars in exchange for euros 90 days from now at a specified exchange rate.The company would most likely use the _____ as a way to reduce exchange-rate risk if the value of the euro decreases substantially relative to the US dollar.

Accepted Answer

A forward exchange rate contract allows a company to lock in an exchange rate today for a transaction that will occur in the future, thus hedging against the risk of unfavorable currency movements.

Question 17

Which of the following statements holds true for hedging?

Accepted Answer

Hedging involves using financial instruments to reduce the risk of adverse price movements by taking an offsetting position.

Question 18

The internal forward rate is a company-generated forecast of future spot-exchange rates.

Accepted Answer

The internal forward rate is an estimate made by a company to predict future exchange rates for budgeting and planning purposes.

Question 19

McDonald's was the first foreign company to issue yuan-denominated bonds.

Accepted Answer

McDonald's was the first foreign company to issue yuan-denominated bonds in 2019.

Question 20

Despite the costs associated with a forward contract, companies often prefer it to protect themselves against a potential larger downside loss.

Accepted Answer

Forward contracts allow companies to lock in prices for currencies, commodities, or other financial instruments, providing a hedge against the risk of price fluctuations. This can protect against potential larger losses that might occur due to volatile market conditions, making the costs associated with entering into these contracts worthwhile for risk management purposes.

Quiz 15: Understanding the Roles of Finance and Accounting in Global Competitive Advantage