Question 1

One motivation for reducing differences in accounting practices across countries is to:
A)Decrease the flow of international capital.
B)Allow greater competition among companies.
C)Reduce companies' tax burdens.
D)Make it easier for investors to compare companies from different countries.

Accepted Answer

The main motivation for reducing differences in accounting practices across countries is to make it easier for investors to compare companies from different countries. This would enhance transparency, promote fair competition, and attract more international capital. It would also create a level playing field for companies operating in different countries, without imposing undue tax burdens. Therefore, option D is the most appropriate choice.

Question 2

For which of the following topics is accounting under both U.S.GAAP and IFRS essentially the same?
A)Receivables.
B)Long-term assets.
C)Inventory.
D)Research and development expenditures.

Accepted Answer

Both U.S. GAAP and IFRS have similar principles for accounting for receivables, including the recognition of bad debt expenses and the use of the allowance method.

Question 3

Suppose a severe storm floods a company's headquarters,causing damages to the building of $300,000 and destruction of inventory of $200,000.Because of the unusual nature of this event,the company had no flood insurance to cover these losses.Under IFRS,how much would the company report as an extraordinary loss in the current year's income statement?
A)$0.
B)$200,000.
C)$300,000.
D)$500,000.

Accepted Answer

Under IFRS, extraordinary items are not recognized separately in the income statement. All losses, including those from unusual events like floods, are included in the regular income statement without separate extraordinary classification.

Question 4

The Norwalk Agreement:
A)Allows foreign companies listed on U.S.stock exchanges to prepare financial statements in accordance with IFRS.
B)Formalizes the commitment between the FASB and IASB to converge U.S.GAAP and IFRS.
C)Eliminates the requirement that U.S.firms report under U.S.GAAP.
D)Gives authority to the IASB to set accounting standards for U.S.companies.

Accepted Answer

The Norwalk Agreement is a formal commitment made in 2002 between the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) to work together towards convergence of U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). It does not allow foreign companies to prepare financial statements in accordance with IFRS, eliminate the requirement for U.S. firms to report under U.S. GAAP, or give authority to the IASB to set accounting standards for U.S. companies.

Question 5

Suppose a company has research costs of $100,000 and development costs of $200,000 for the year.Under U.S.GAAP,what amount would be reported as an expense in the current year's income statement?
A)$100,000.
B)$150,000.
C)$200,000.
D)$300,000.

Accepted Answer

Under U.S. GAAP, both research costs and development costs are expensed as incurred. Therefore, the total amount of $300,000 ($100,000 + $200,000) would be reported as an expense on the current year's income statement.

Question 6

Which inventory cost flow assumption is allowed under U.S.GAAP but not under IFRS? Explain why some U.S.companies will lobby strongly to keep this method as an allowable alternative.

Accepted Answer

The answer of Which inventory cost flow assumption is allowed...

Question 7

When a country establishes financial reporting rules that closely resemble tax reporting rules,reported accounting profits tend to be:
A)Negative.
B)Higher.
C)Lower.
D)Misreported.

Accepted Answer

When financial reporting rules closely resemble tax reporting rules, companies may be incentivized to minimize their reported profits in order to reduce their tax liabilities. This can result in reported accounting profits being lower than they would be under a different reporting regime.

Question 8

Suppose a company pays interest of $10,000 for the year on borrowed amounts due in two years.Under IFRS,what is the most the company can report this year as cash outflows from financing activities related to this item?
A)$10,000.
B)$2,000.
C)$5,000.
D)$0.

Accepted Answer

Under IFRS, interest paid is classified as either operating or financing activities. The company can report the full $10,000 as cash outflows from financing activities if it chooses to classify interest paid as such.

Question 9

Which inventory cost flow assumption is allowed under U.S.GAAP but not under IFRS?
A)Specific identification.
B)FIFO.
C)LIFO.
D)Average cost.

Accepted Answer

LIFO is not allowed under IFRS because it is not considered to be a reliable measure of inventory value.

Question 10

Which of the following statements is true regarding revaluation of property,plant,and equipment to fair value?
A)Only IFRS allows revaluation of property,plant,and equipment to fair value.
B)Only U.S.GAAP allows revaluation of property,plant,and equipment to fair value.
C)Both U.S.GAAP and IFRS allow revaluation of property,plant,and equipment to fair value.
D)Neither U.S.GAAP nor IFRS allows revaluation of property,plant,and equipment to fair value.

Accepted Answer

IFRS allows revaluation of property, plant, and equipment to fair value, whereas U.S. GAAP does not permit revaluation to fair value.

Question 11

Suppose a company pays interest of $10,000 for the year on borrowed amounts due in two years.Under U.S.GAAP,what is the most the company can report this year as cash outflows from financing activities related to this item?
A)$10,000.
B)$2,000.
C)$5,000.
D)$0.

Accepted Answer

Under U.S. GAAP, interest expense is recognized on an accrual basis, meaning that it is recorded in the period in which it is incurred, regardless of when it is paid. Therefore, the company cannot report any cash outflows from financing activities related to this item in the current year.

Question 12

Why are some U.S.companies opposed to elimination of the LIFO inventory method?
A)Inventory amounts are more difficult to calculate under FIFO.
B)LIFO most likely matches actual flow of inventory.
C)Increased tax burden.
D)Most international companies use LIFO.

Accepted Answer

The elimination of LIFO would result in increased tax burden for companies that use this inventory method. This is because LIFO allows companies to report lower profits and therefore pay less in taxes. Eliminating LIFO would require companies to switch to another inventory method, such as FIFO, which could result in higher reported profits and in turn, higher taxes.

Question 13

Suppose a severe storm floods a company's headquarters,causing damages to the building of $300,000 and destruction of inventory of $200,000.Because of the unusual nature of this event,the company had no flood insurance to cover these losses.Under U.S.GAAP,how much would the company report as an extraordinary loss in the current year's income statement?
A)$0.
B)$200,000.
C)$300,000.
D)$500,000.

Accepted Answer

Under U.S. GAAP, extraordinary losses are reported net of any related income tax effects. In this case, the company would report an extraordinary loss of $500,000 ($300,000 + $200,000).

Question 14

What is the main objective of the International Accounting Standards Board (the IASB)?

Accepted Answer

The answer of What is the main objective of the...

Question 15

The body primarily responsible for establishing a single set of global accounting standards is the:
A)IASB.
B)SEC.
C)FASB.
D)IOSCO.

Accepted Answer

The International Accounting Standards Board (IASB) is responsible for developing and publishing International Financial Reporting Standards (IFRS) that can be used by companies around the world as a single, consistent set of accounting standards. The other options, SEC, FASB, and IOSCO, have roles in accounting regulation or standard-setting, but they are not primarily responsible for establishing global accounting standards.

Question 16

Suppose a company has research costs of $100,000 and development costs of $200,000 for the year.Under IFRS,what amount would be reported as an expense in the current year's income statement?
A)$100,000.
B)$150,000.
C)$200,000.
D)$300,000.

Accepted Answer

Under IFRS, research costs are expensed as incurred, while development costs can be capitalized if certain criteria are met. Without information on whether the development costs meet these criteria, only the research costs of $100,000 are expensed.

Question 17

Describe at least five reasons why accounting practices differ across countries.Which reason do you think is most important? Explain why.

Accepted Answer

The answer of Describe at least five reasons why accounting...

Question 18

Would a company be more likely to report a contingent liability under U.S.GAAP or IFRS?
A)U.S.GAAP.
B)IFRS.
C)Equally likely.
D)Contingent liabilities are not reported under IFRS.

Accepted Answer

Under IFRS, a contingent liability is more likely to be reported because IFRS requires the recognition of a provision when it is probable that an outflow of resources will be required and the amount can be reliably estimated. U.S. GAAP is more conservative and requires a higher threshold of certainty before recognizing a liability.

Question 19

Compared to that in the U.S,the cost to companies in other countries of documenting effective internal controls is:
A)Much greater.
B)Slightly greater.
C)About the same.
D)Much less.

Accepted Answer

The cost to companies in other countries of documenting effective internal controls is much less when compared to the US. This is because the US has stringent regulations like the Sarbanes-Oxley Act, which require extensive documentation and testing of internal controls, making it more expensive for companies. Other countries may have less stringent regulations, resulting in lower costs for companies.

Question 20

Assuming rising costs,the switch from LIFO to FIFO or average cost would most likely have what effect(s)?
A)Increase reported net income in the income statement.
B)Decrease tax obligations to the Internal Revenue Service (IRS).
C)Increase reported net income and tax obligations.
D)Decrease reported net income and tax obligations.

Accepted Answer

The answer of Assuming rising costs,the switch from LIFO to...

Quiz 15: International Financial Reporting Standards

One motivation for reducing differences in accounting practices across countries is to:

For which of the following topics is accounting under both U.S.GAAP and IFRS essentially the same?

The Norwalk Agreement:

Suppose a company has research costs of $100,000 and development costs of $200,000 for the year.Under U.S.GAAP,what amount would be reported as an expense in the current year's income statement?

Which inventory cost flow assumption is allowed under U.S.GAAP but not under IFRS? Explain why some U.S.companies will lobby strongly to keep this method as an allowable alternative.

When a country establishes financial reporting rules that closely resemble tax reporting rules,reported accounting profits tend to be:

Suppose a company pays interest of $10,000 for the year on borrowed amounts due in two years.Under IFRS,what is the most the company can report this year as cash outflows from financing activities related to this item?

Which inventory cost flow assumption is allowed under U.S.GAAP but not under IFRS?

Which of the following statements is true regarding revaluation of property,plant,and equipment to fair value?

Suppose a company pays interest of $10,000 for the year on borrowed amounts due in two years.Under U.S.GAAP,what is the most the company can report this year as cash outflows from financing activities related to this item?

Why are some U.S.companies opposed to elimination of the LIFO inventory method?

What is the main objective of the International Accounting Standards Board (the IASB)?

The body primarily responsible for establishing a single set of global accounting standards is the:

Suppose a company has research costs of $100,000 and development costs of $200,000 for the year.Under IFRS,what amount would be reported as an expense in the current year's income statement?

Describe at least five reasons why accounting practices differ across countries.Which reason do you think is most important? Explain why.

Would a company be more likely to report a contingent liability under U.S.GAAP or IFRS?

Compared to that in the U.S,the cost to companies in other countries of documenting effective internal controls is:

Assuming rising costs,the switch from LIFO to FIFO or average cost would most likely have what effect(s) ?