Acct 450 Final Concept Questions

Smith Inc. had a Euro receivable resulting from exports to Germany and a Japanese Yen payable resulting from imports from Japan. Smith recorded foreign exchange gains related to both its Euro receivable and Yen payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?
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Smith Inc. had a Euro receivable resulting from exports to Germany and a Japanese Yen payable resulting from imports from Japan. Smith recorded foreign exchange gains related to both its Euro receivable and Yen payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?
Euro: Increase
Yen: Decrease
On December 1, a U.S. company purchased inventory from a supplier in the United Kingdom. Payment is required in British Pounds in 60 days. What exchange rate should be used to value the payable for this transaction at year-end?
Exchange rate at year-end
For fair value hedges of foreign currency assets and liabilities, how should gains or losses be recognized?
The gain or loss, along with the offsetting loss or gain attributable to the hedged risk, should be recognized currently in earnings in the same accounting period
Matador Co. has two derivatives related to two different accounts receivables in foreign currency, account receivable A and account receivable B. The derivative related to account receivable A is a fair value hedge, and the derivative related to account receivable B is a cash flow hedge. Matador experienced losses in the value of accounts receivable A and B due to a change in foreign exchange rates. Which of the net losses should be reported by Matador in its income statement?
Net loss in receivable A - YES
Net loss in receivable B - NO
ASC 815 provides guidance for hedges of all the following sources of foreign exchange risk EXCEPT:
A. deferred foreign currency gains and losses
B. recognized foreign currency denominated assets and liabilities
C. forecasted foreign currency denominated transactions
D. Net investment in foreign operations
E. Unrecognized foreign currency firm commitments
A. deferred foreign currency gains and losses
All of the following data may be needed to determine the fair value of a forward contract at any point in time EXCEPT:
A. a discount rate
B. the forward rate when the forward contract was entered into
C. the future spot rate
D. the current forward rate for a contract that matures on the same data as the forward contract entered into
C. the future spot rate
Reseda Co. records its transactions in U.S. dollars. A purchase of goods resulted in a payable denominated in Euros, and a sale of goods resulted in a receivable denominated in Japanese yen. Reseda recorded a foreign exchange loss on collection of the receivable and an exchange gain on settlement of the payable. The exchange rates are exnpressed as so many units of foreign currency to one dollar. Did the number of foreign currency units exchangeable for a dollar decrease or increase between the contract and settlement dates?
Euros exchangeable for $1 - Decrease
Yen exchangeable for $1 - Decrease
Direct quote
When the rate is expressed as the US $ equivalent of 1 unit of foreign currency
Indirect quote
When the rate is expressed as the number of foreign currency units that $1 will buy
Which of the following is the characteristic of a perfect hedge?
a. No possibility of future gain or loss.
b. No possibility of future gain only.
c. No possibility of future loss only.
d. The possibility of future gain and no future loss.
a. No possibility of future gain or loss.
Which of the following items is included in accumulated other comprehensive income or loss? A. Unrealized gains and losses from the ineffective portion of a derivative properly designated as a cash flow hedge. B. Unrealized holding gains or losses on securities classified as trading securities. C. A reduction of shareholders' equity related to employee stock ownership plans. D. Prior service costs not previously recognized as a component of net periodic pension costs.D. Prior service costs not previously recognized as a component of net periodic pension costs.Which of the following financial instruments may be considered a derivative financial instrument? A. Option contract. B. Municipal bond. C. Bank certificate of deposit. D. Money market fund.A. Option contract.A company from Germany reports in the United States in U.S. dollars and reports in the United Kingdom in British pounds. The company uses Euros in its normal operations. The company is co-owned by private equity firms in Taiwan and Japan. What is the company's functional currency?The EuroWhich of the following is correct about the current rate method of translations?A translation adjustment is recorded by the change in the relative value of a sub's net assets due to exchange rate fluctuationsWhich of the following items would be found in comprehensive income?Foreign currency translation adjustmentA foreign subsidiary currently has a net liability (balance sheet) exposure. When the foreign currency increases in value, the company would recognize:A remeasurement gainA foreign subsidiary's functional currency is its local currency and a net asset (balance sheet) exposure exists. When the foreign currency increases in value, the company would recognize:A positive translation adjustmentWhen translating financial statements, what translation method preserves the underlying valuation methods?Temporal methodA foreign subsidiary's functional currency is its local currency. The foreign sybsidiary's capital accounts would be translated at which of the following rates?Historical exchange rateA company's foreign subsidiary operation maintains its financial statments in the local currency. The foreign subsidiary has not experienced significant inflation. The weighted average exchange rate for the current year would be the appropriate exchange rate for translating: Gain on sale of equipment - Salaries expense - Prepaid insurance -Gain on sale of equipment - No Salaries expense - Yes Prepaid insurance - NoGarcia Inc., a foreign subsidiary of a U.S. parent company, has one asset (marketable securities) and no liabilities. The functional currency for this subsidiary is the U.S. dollars. The marketable securities were acquired for 1,000,000 pesos when the exchange rate was $1=19 pesos. Consolidated statements are to be produced, and the current exchange rate is $1=24 pesos. Which of the following statements is true for the consolidated financial statements?A positive translation adjustment must be reportedIn accounting for foreign currency transactions, which of the following approaches is used in the United States?Two-transaction approach; accrue foreign exchange gains and lossesOn October 1, Tile Co., a U.S. company, purchased products from Azulejo, a Portuguese company, with payment due on December 1. If Tile's operating income included no foreign exchange gain or loss, the transaction could haveBeen denominated in U.S. dollarsA U.S. exporter has a Thai baht account receivable resulting from an export sale on June 1 to a customer in Thailand. The exporter signed a forward contract on June 1 to sell Thai baht and designated it as a cash flow hedge of a recognized Thai baht receivable. The spot rate was $0.022 on that date, and the forward rate was $0.021. Forward points are excluded from the assessment of hedge effectiveness. Which of the following is true with respect to the forward points on this contract? The forward points are a:Forward contract discount that is recognized in net income as a foreign exchange lossWhat is a subsidiary's functional currency?The currency in which the entity primarily generates and expends cashIn comparing the current rate and temporal methods of translation, which of the following is true?The reported balance of accounts receivable is normally the same under both methodsWhich of the following statements is true for the translation process using the current rate method? a. A translation adjustment can affect consolidated net income. b. Equipment is translated at the historical exchange rate in effect at the date of its purchase. c. A translation adjustment is created by the change in the relative value of a subsidiary's monetary assets and monetary liabilities caused by exchange rate fluctuations. d. A translation adjustment is created by the change in the relative value of a subsidiary's net assets caused by exchange rate fluctuations.d. A translation adjustment is created by the change in the relative value of a subsidiary's net assets caused by exchange rate fluctuations.Which of the following statements is true? a. The Securities Exchange Act of 1934 regulates intrastate stock offerings made by a company. b. The Securities Act of 1933 regulates the subsequent public trading of securities through brokers and markets. c. The Securities Exchange Act of 1934 is commonly referred to as blue sky legislation. d. The Securities Act of 1933 regulates the initial offering of securities by a company.d. The Securities Act of 1933 regulates the initial offering of securities by a company.What is the purpose of regulation S-K?Establishes required disclosure of nonfinancial information with the SECWhat is the difference between Regulation S-K and Regulation S-X?Regulation S-K establishes regulations for nonfinancial information filed with the SEC, whereas Regulation S-X prescribes the form and content of financial statements included in SEC filings.The Securities Exchange Act of 1934Regulates the public trading of previously issued securities through brokers and exchanges.Which of the following is a requirement of the Sarbanes-Oxley Act of 2002? a. Registration of all auditing firms with the Public Company Accounting Oversight Board b. Annual inspection of all auditing firms registered with the Public Company Accounting Oversight Board c. A monetary fee assessed on organizations issuing securities d. Overall assessment of the work of the SEC each yearc. A monetary fee assessed on organizations issuing securitiesWhich of the following is not correct with regard to the Public Company Accounting Oversight Board? a. The board can expel a registered auditing firm without SEC approval. b. All registered auditing firms must be inspected at least every three years. c. The board members must be appointed by Congress. d. The board has the authority to set auditing standards rather than utilize the work of the Auditing Standards Board.c. The board members must be appointed by Congress.Which of the following is not a way by which the Sarbanes-Oxley Act attempts to ensure auditor independence from an audit client? a. The auditing firm must be appointed by the client's audit committee. b. Audit fees must be approved by the Public Company Accounting Oversight Board. c. The audit committee must be composed of members of the client's board of directors who are independent of the management. d. The external auditor cannot also perform financial information system design and implementation work.b. Audit fees must be approved by the Public Company Accounting Oversight Board.What is a registration statement? a. A statement that must be filed with the SEC before a company can begin an initial offering of securities to the public b. A required filing with the SEC before a large amount of stock can be obtained by an inside party c. An annual filing made with the SEC d. A filing made by a company with the SEC to indicate that a significant change has occurreda. A statement that must be filed with the SEC before a company can begin an initial offering of securities to the publicWhich of the following is a registration statement used by large companies that already have a significant following in the stock market? a. Form 8-K b. Form 10-K c. Form S-1 d. Form S-3d. Form S-3What was the significance of the controversy in 1977 over the appropriate accounting principles to be used by oil- and gas-producing companies? a. Several major lawsuits resulted. b. Companies refused to follow the SEC's dictates. c. Partners of a major accounting firm were indicted on criminal charges. d. The SEC overruled the FASB on its handling of this matter.d. The SEC overruled the FASB on its handling of this matter.Which of the following must be provided to every potential buyer of a new security? a. A letter of comments b. A deficiency letter c. A prospectus d. A Form S-16c. A prospectusWhat does the term incorporation by reference mean? a. The legal incorporation of a company in more than one state b. Filing information with the SEC by indicating that the information is already available in another document c. A reference guide indicating informational requirements specified in Regulation S-X d. Incorporating a company in a state outside of its base of operationsb. Filing information with the SEC by indicating that the information is already available in another documentWhat is a letter of comments? a. A letter the SEC sends to a company indicating needed changes or clarifications in a registration statement b. A questionnaire supplied to the SEC by a company suggesting changes in Regulation S-X c. A letter included in a Form 10-K to indicate the management's assessment of the company's financial position d. A letter composed by a company asking for information or clarification prior to the filing of a registration statementa. A letter the SEC sends to a company indicating needed changes or clarifications in a registration statementWhat is a prospectus? a. A document attached to a Form 8-K b. A potential stockholder, as defined by Regulation S-K c. A document a company files with the SEC prior to filing a registration statement d. The first part of a registration statement that a company must furnish to all potential buyers of a new securityd. The first part of a registration statement that a company must furnish to all potential buyers of a new securityWhich of the following is not exempt from registration with the SEC under the Securities Act of 1933? a. Securities issued by a nonprofit religious organization b. Securities issued by a government unit c. A public offering of $40 million to unaccredited investors under Regulation A d. An offering to 40 sophisticated investorsd. An offering to 40 sophisticated investorsWhich of the following is usually not filed with the SEC on a regular periodic basis? a. A Form 10-Q b. A prospectus c. A proxy statement d. A Form 10-Kb. A prospectusWhat is a shelf registration? a. A registration statement that the SEC formally rejects b. A registration statement that the SEC rejects due to the lapse of a specified period of time c. A registration process for large companies that allows them to offer securities over a period of time without seeking additional approval by the SEC d. A registration form that is withdrawn by the registrant without any action having been takenc. A registration process for large companies that allows them to offer securities over a period of time without seeking additional approval by the SECWhat is EDGAR? a. A system the SEC uses to reject registration statements that do not contain adequate information b. The enforcement arm of the SEC c. A system designed by the SEC to allow electronic filings d. A branch of the government that oversees the work of the SECc. A system designed by the SEC to allow electronic filingsU.S. Securities and Exchange Commission (SEC) regulations for the financial statement presentation and disclosure requirements of SEC filings can be found in: A. Regulation S-B. B. Regulation S-K. C. Regulation S-T. D. Regulation S-X.D. Regulation S-X.Each of the following statements is correct regarding the Financial Accounting Standards Board, except: A. It develops principles and attributes that allow organizations to understand the necessary elements to ensure a robust system of internal control. B. It is recognized as authoritative by the United States Securities and Exchange Commission and the American Institute of Certified Public Accountants. C. It establishes accounting concepts and standards for financial accounting and reporting, and provides guidance on implementation of standards. D. It provides a conceptual framework that helps to increase understanding of, and confidence in, financial information on the part of users of financial reports.A. It develops principles and attributes that allow organizations to understand the necessary elements to ensure a robust system of internal control.Changes to existing authoritative GAAP for nonissuer, nongovernmental entities are communicated by the Financial Accounting Standards Board through the issuance of: A. Exposure Drafts. B. Concept Statements. C. Accounting Standards Updates. D. Statements of Financial Accounting Standards.C. Accounting Standards Updates.Which of the following is the annual report that is filed with the United States Securities and Exchange Commission? A. Form 8-K. B. Form 10-K. C. Form S-1. D. Form 10-Q.B. Form 10-K.Which of the following reports would a company file to meet the U.S. Securities and Exchange Commission's requirements for unaudited, interim financial statements reviewed by an independent accountant? A. Form 10-Q. B. Form 10-K. C. 14A Proxy Statement. D. Form S-1.A. Form 10-Q.ABC Co. is a public company that is required to file financial reports with the United States Securities and Exchange Commission (SEC). ABC acquired a significant related business, Bauer Co., through the registration and issuance of additional shares of common stock to the former stockholders of Bauer. Which of the following forms should ABC file with the SEC as a result of the acquisition of Bauer? A. Form 8-K. B. Form 10-K. C. Form 10-Q. D. Form S-1.A. Form 8-KEach of the following events is required to be reported to the United States Securities and Exchange Commission on Form 8-K, except A. The creation of an obligation under an off-balance sheet arrangement of a registrant. B. The unregistered sale of equity securities. C. A change in a registrant's certifying accountant. D. The quarterly results of operations and financial condition of a registrant.D. The quarterly results of operations and financial condition of a registrant.The definition of a smaller reporting company with respect to market value, as established by the U.S. Securities and Exchange Commission, includes companies with less than exactly what amount in public equity float? A. $75 million B. $100 million C. $125 million D. $150 millionA. $75 millionA U.S. publicly traded company's second fiscal quarter ends on March 31. If the company is an accelerated filer, what is the latest date that the 10-Q should be filed with the U.S. SEC? A. May 10. B. May 15. C. May 30. D. June 29A. May 10.A U.S. public company with a worldwide public float of $800 million at the end of the second quarter of the fiscal year is required to file its annual report with the U.S. SEC on: A. Form 10-Q within 40 days after the end of the reporting period. B. Form 10-Q within 45 days after the end of the reporting period. C. Form 10-K within 60 days after the end of the reporting period. D. Form 10-K within 75 days after the end of the reporting period.C. Form 10-K within 60 days after the end of the reporting period.Which of the following employees of an issuer is required to certify the company's financial reports filed with the SEC? A. The chief executive officer, but not the chief financial officer. B. The chief financial officer, but not the chief executive officer. C. Neither the chief executive officer nor the chief financial officer. D. Both the chief executive officer and the chief financial officer.D. Both the chief executive officer and the chief financial officer.Which of the following matters is included in a typical comfort letter? A. Negative assurance on whether unaudited condensed financial information complies in form with the accounting requirements of the SEC. B. An opinion on whether any fraud risk factors indicate significant incentive and opportunity relating to fraudulent financial reporting. C. Positive assurance on whether there has been any change in capital stock or long-term debt since the date of the audited financial statements. D. An opinion on whether the entity's internal control components are operating as designed in achieving their stated objectives.A. Negative assurance on whether unaudited condensed financial information complies in form with the accounting requirements of the SEC.A company has a total revenue of $1,000,000, profits of $90,000, total assets of $10,000,000, and total liabilities of $5,000,000. Operating segment Sun has revenues of $95,000, profit of $10,000, assets of $900,000, and liabilities of $550,000. Which of the following tests makes Sun a reportable segment? A. Revenue test. B. Profit test. C. Asset test. D. Liability test.B. Profit test.Lyon Co. estimated its ending inventory using a method based on the financial statements of prior periods in order to prepare its quarterly interim financial statements. What type of inventory system and method of estimating ending inventory is Lyon using? Inventorysystem - Method of estimating ending inventory A. Perpetual - Retail method B. Perpetual - Gross profit method C. Periodic - Sales method D. Periodic - Gross profit methodD. Periodic - Gross profit methodYellow Co. received a large worker's compensation claim of $90,000 in the third quarter for an injury occurring in the third quarter. How should Yellow account for the transaction in its interim financial report? A. Recognize $30,000 for each of the first three quarters. B. Recognize $90,000 in the third quarter. C Recognize $22,500 ratably over the four quarters of the year. D. Disclose the $90,000 in the third quarter and recognize it at year end.B. Recognize $90,000 in the third quarter.A company that issues quarterly financial statements incurs an extraordinary loss in one of the first three quarters. In which of the following ways would the company report the extraordinary loss? A. Only in the annual report. B. Entirely in the quarter that the loss occurs. C. Prorated over the remaining quarters of the current year. D. Disclosed only by a note in the quarter that the loss occurs.B. Entirely in the quarter that the loss occurs.