Question: Sandoval Company operates in a country in

> What financial reporting issues arise as a result of making a foreign direct investment?

> What accounting issues arise for a company as a result of engaging in international trade (imports and exports)?

> Which group has negotiated the greatest number of advance pricing agreements with the U.S. Internal Revenue Service (IRS)? a. Foreign parent companies with branches and subsidiaries in the United States. b. U.S. parent companies with branches and subsidi

> U.S. Treasury Regulations require the use of one of five specified methods to determine the arm’s-length price in a sale of tangible property. Which of the following is not one of those methods? a. Cost-plus method. b. Market-based method. c. Profit spli

> Market-based transfer prices lead to optimal decisions in which of the following situations? a. When interdependencies between the related parties are minimal. b. When there is no advantage or disadvantage to buying and selling the product internally rat

> Which of the following is not a method commonly used for establishing transfer prices? a. Cost-based transfer price. b. Negotiated price. c. Market-based transfer price. d. Industry wide transfer price.

> Which of the following types of transaction is most likely to be audited? a. Sales of tangible property. b. Licenses of intangible property. c. Intercompany loans. d. Intercompany services.

> Bridget’s Bakery Inc. enters into a new operating lease for a 10-year term at a monthly rental of $2,500. To induce Bridget’s Bakery into the lease, the lessor agreed to a free-rent period for the first three months. Required: Determine the amount of le

> How are the estimated costs of removing and dismantling an asset handled upon initial recognition of the asset?

> Which international organization has developed transfer pricing guidelines that are used as the basis for transfer pricing laws in several countries? a. World Bank. b. Organization for Economic Cooperation and Development. c. United Nations. d. Internati

> Which of the following methods does U.S. tax law always require to be used in pricing intercompany transfers of tangible property? a. Comparable uncontrolled price method. b. Comparable profits method. c. Cost-plus method. d. Best method.

> Which of the following would be an acceptable transfer price under the comparable profits method? a. $700 b. $750 c. $795 d. $825

> Which of the following would be an acceptable transfer price under the cost plus method? a. $700 b. $750 c. $795 d. $825

> Which of the following would be an acceptable transfer price under the resale price method? a. $700 b. $750 c. $795 d. $825

> Which of the following objectives is not achieved through the use of lower transfer prices? a. Improving the competitive position of a foreign operation. b. Minimizing import duties. c. Protecting foreign currency cash flows from currency devaluation. d.

> Jordan Inc., a U.S. company, is required to translate the foreign income generated by its foreign operation. To determine U.S. taxable income, what must Jordan use to translate the income of its foreign branch into U.S. dollars? a. The exchange rate at t

> What are the two most common methods of eliminating the double taxation of income earned by foreign corporations? a. Exempting foreign source income and deducting all foreign taxes paid. b. Deducting all foreign taxes paid and providing a foreign tax cre

> Poole Corporation is a U.S. company with a branch in China. Income earned by the Chinese branch is taxed at the Chinese corporate income tax rate of 25 percent and at the rate of 35 percent in the United States. What is this an example of? a. Capital-exp

> Kerry is a U.S. citizen residing in Portugal. Kerry receives some investment income from Spain. Why might Kerry be expected to pay taxes on the investment income to the United States? a. The United States taxes its citizens on their worldwide income. b.

> In what way did both the domestic international sales corporation and the foreign sales corporation violate international trade agreements?

> This problem is comprised of three parts. Part A. Fields Company sells a building to Victory Finance Company. The selling price of the building is $500,000, which approximates its fair value, and the carrying amount is $400,000. Fields then leases the bu

> Why might companies have an incentive to finance their foreign operations with as much debt as possible? a. Interest payments are generally tax deductible. b. Withholding rates are lower for dividends. c. Withholding rates are lower for interest. d. Both

> Which of the following item(s) might provide an MNC with a tax-planning opportunity as it decides where to locate a foreign operation? a. Differences in corporate tax rates across countries. b. Differences in local tax rates across countries. c. Whether

> Which of the following items is not a tax benefit provided by Congress to U.S. citizens working abroad? a. Foreign earned income exclusion. b. Foreign tax credit. c. Dividend income exclusion. d. Foreign housing exclusion.

> Why might a company involved in international business find it beneficial to establish an operation in a tax haven? a. The OECD recommends the use of tax havens for corporate income tax avoidance. b. Tax havens never tax corporate income. c. Tax havens a

> In Year 3, how much excess foreign tax credit can Powell carry back? a. $7,500. b. $6,000. c. $1,000. d. $0.

> For Year 3, what is the net U.S. tax liability? a. $35,000. b. $0. c. $1,000. d. $6,000.

> For Year 1, Year 2, and Year 3, what is the foreign tax credit allowed in the United States? a. $7,500, $6,000, and $0. b. $18,750, $29,000, and $36,000. c. $75,000, $100,000, and $100,000. d. $18,750, $29,000, and $35,000.

> In deciding whether to establish a foreign operation, which factor(s) might a multinational corporation (MNC) consider? a. After-tax returns from competing investment locations. b. The tax treatments of branches versus subsidiaries. c. Withholding rates

> The functional currency of Garland Inc.’s Japanese subsidiary is the Japanese yen. Garland borrowed Japanese yen as a partial hedge of its investment in the subsidiary. How should the transaction gain on the foreign currency borrowing be reported in Garl

> What is treaty shopping?

> In accordance with U.S. generally accepted accounting principles (GAAP), which translation combination would be appropriate for a foreign operation whose functional currency is the U.S. dollar? Method Treatment of Translation Adjustment Temporal Te

> Atlanta Tours Company entered into a five-year lease on January 1, Year 1, with Duck Boats Inc. for a customized duck boat. Duck Boats Inc. will provide a vehicle to Atlanta Tours Company with the words “Gone with the Wind” carved into the sides. Followi

> Which method of translation maintains, in the translated financial statements, the underlying valuation methods used in the foreign currency financial statements? a. Current rate method; income statement translated at average exchange rate for the year.

> Which of the following best explains how a translation loss arises when the temporal method of translation is used to translate the foreign currency financial statements of a foreign subsidiary? a. The foreign subsidiary has more monetary assets than mon

> A foreign subsidiary of Wampoa Ltd. has one asset (inventory) and no liabilities. The subsidiary operates with a significant degree of autonomy from Wampoa and primarily uses the local currency (the won) in carrying out its transactions. Since the date t

> In translating the financial statements of a foreign subsidiary into the parent’s reporting currency under the current rate method, which of the following statements is true? a. Expenses are translated using a combination of current and historical exchan

> Which of the following items is normally translated the same way under both the current rate and temporal methods of translation? a. Inventory b. Equipment c. Sales revenue d. Depreciation expense

> What was the net impact on Keefer Company’s Year 2 income as a result of this fair value hedge of a firm commitment? a. $0. b. An $839.40 decrease in income. c. A $74,160.60 increase in income. d. A $76,200.00 increase in income.

> Assuming no forward contract was entered into, how much foreign exchange gain or loss should Reiter report on its Year 1 income statement with regard to this transaction? a. A $5,000 gain. b. A $3,000 gain. c. A $2,000 loss. d. A $1,000 loss.

> On December 1, Year 1, Tackett Company (a U.S.-based company) entered into a three-month forward contract to purchase 1 million Mexican pesos on March 1, Year 2. The following U.S. dollar per peso exchange rates apply: Tackett’s inc

> This is a continuation of problem 15. At December 31, Year 2, Beech Corporation still had the same three different products in its inventory. The following table provides updated information for the company’s products: Beech Corpora

> How does an entity account for a choice-of-settlement share-based payment transaction?

> Gracie Corporation had a Japanese yen receivable resulting from exports to Japan and a Brazilian real payable resulting from imports from Brazil. Gracie recorded foreign exchange gains related to both its yen receivable and real payable. Did the foreign

> What is the net impact on Black Lion Company’s Year 2 net income as a result of this hedge of a forecasted foreign currency purchase? Assume that the raw materials are consumed and become a part of cost of goods sold in Year 2. a. A $70,000 decrease in n

> Thurstone Company, a U.S.-based company, borrows 1,500,000 British pounds (£) on January 1, Year 1, at an interest rate of 4 percent to finance the construction of a new office building for its employees in England. Construction is expected to take six m

> Which of the following combinations correctly describes the relationship between foreign currency transactions, exchange rate changes, and foreign exchange gains and losses? Туре of Transaction Foreign Currency Foreign Exchange Gain or Loss Export

> Visit the New York Stock Exchange Web site (www.nyse.com). Required: Determine the number of companies listed on the NYSE from each of the five countries covered in this chapter.

> Which of the following is not a criterion that must be met to recognize revenue from the sale of goods? a. The amount of revenue can be measured reliably. b. The significant risks and rewards of ownership of the goods have been transferred to the buyer.

> Which of the following types of share-based payment (SBP) transactions always results in the recognition of a liability? a. Equity-settled SBP transaction with employees. b. Equity-settled SBP transaction with nonemployees. c. Cash-settled SBP transactio

> When stock options are granted to employees, what is the basis for determining the amount of compensation cost that will be recognized as expense? a. The fair value of the service provided by the employees receiving the options at the grant date. b. The

> Past service cost related to non vested employees should be recognized as expense a. In the period the cost is incurred. b. Over the non vested employees’ remaining vesting period. c. Over the non vested employees’ estimated remaining working life. d. Ov

> How might an analyst obtain the most recent financial statements for a foreign company in which he or she is interested?

> Melbourne Inc. became involved in a tax dispute with the national tax authority. Melbourne’s legal counsel indicates that there is a 70 percent likelihood that the company will lose this dispute and estimates that the amount the company will have to pay

> Bull Arm Company has the following items at December 31, Year 1: • $200,000, 5 percent note payable, due March 15, Year 2. The company has reached an agreement with the bank to refinance the note for two years, but the refinancing has not yet been comple

> Costs incurred to accomplish a less- than-substantial debt modification, such as an interest rate adjustment, are treated in which of the following ways? a. Expensed immediately. b. Increase the carrying amount of the debt that has been modified. c. Decr

> This exercise consists of three parts. Part A. On January 1, Year 1, Complete Company acquired 60 percent of the outstanding shares of Partial Company by paying $1,200,000 in cash. The fair value of Partial’s identifiable assets and liabilities is $2,000

> Sinto Bem Company issues a two-year note paying 5 percent interest on January 1, Year 1. The note sells for its par value of $1,000,000, and the company incurs issuance costs of $22,000. Which of the following amounts best approximates the amount of int

> Manometer Company sells accounts receivable of $10,000 to Eck Bank for $9,000 in cash. The sale does not qualify for de recognition of a financial asset. As a result, Manometer’s balance sheet will be different in which of the following ways? a. $1,000 m

> Halifax Corporation has a December 31 fi scal year-end. As of December 31, Year 1, the company has a debt covenant violation that results in a 10-year note payable to Nova Scotia Bank becoming due on March 1, Year 2. Halifax will be required to classify

> Recently the IASB revised IFRS 1. Required: What is the main reason for this revision?

> On December 31, Year 1, Airways Corp. issued $1 million in bonds at 5 percent annual interest, due December 31, Year 6, at a discount of $100,000. Airways incurred bank fees of $100,000, legal fees of $50,000, and salaries of $25,000 for its employees in

> An entity can justify a change in accounting policy if a. The change will result in a reliable and more relevant presentation of the financial statements. b. The entity encounters new transactions that are substantively different from existing or previou

> Which companies might Ford Motor Company include in a benchmarking study of the automobile industry, and in which countries are those companies located?

> In selecting an accounting policy for a transaction, which of the following is the first level within the hierarchy of guidance that should be considered? a. The most recent pronouncements of other standard-setting bodies to the extent they do not confli

> An entity must adjust its financial statements for an event that occurs after the end of the reporting period if a. The event occurs before the financial statements have been approved for issuance and it provides evidence of conditions that existed at th

> Which of the following best describes the accounting for goodwill subsequent to initial recognition? a. Goodwill is amortized over its expected useful life, not to exceed 20 years. b. Goodwill is tested for impairment whenever impairment indicators are p

> An entity incurs the following costs in connection with the purchase of a trademark: Purchase price of the trademark…………………………………………………………………………$80,000 Nonrefundable value added tax paid on the purchase of the trademark…………………..4,000 Training sales dep

> This exercise consists of two parts. Part A. T he following table summarizes the assets of the Rocker Division (a separate cash-generating unit) at December 31, Year 5, prior to testing goodwill for impairment. Property, Plant, and Equipment and Other I

> Which of the following is a criterion that must be met in order for an item to be recognized as an intangible asset? a. The item’s fair value can be measured reliably. b. The item is part of the entity’s activities aimed at gaining new scientific or tech

> Under IFRS, an entity that acquires an intangible asset may use the revaluation model for subsequent measurement only if a. The useful life of the intangible asset can be reliably determined. b. An active market exists for the intangible asset. c. The co

> An asset is considered to be impaired when its carrying amount is greater than its a. Net selling price. b. Value in use. c. Undiscounted future cash flows. d. Recoverable amount.

> Which of the following is not a criterion that must be met before an entity recognizes a provision related to a restructuring program? a. The entity has a detailed formal plan for the restructuring. b. The entity has begun implementation of the restructu

> When an entity chooses the revaluation model as its accounting policy for measuring property, plant, and equipment, which of the following statements is correct? a. When an asset is revalued, the entire class of property, plant, and equipment to which th

> Why might individual investors wish to include foreign companies in their investment portfolio?

> A company determined the following values for its inventory as of the end of its fiscal year: Historical cost……………………………………………………………………………….$50,000 Current replacement cost…………………………………………….…………………..35,000 Net realizable value……………………………………………………………….…

> A company incurred the following costs related to the production of inventory in the current year: Cost of materials…………………………………………………………….…..…………………..$100,000 Cost of direct labor……………………………………………………………………………………. 60,000 Allocation of variable overhea

> What is an advance pricing agreement?

> Under what conditions would a company apply for a correlative adjustment from a foreign tax authority? What effect do tax treaties have on this process?

> According to U.S. tax regulations, what are the five methods to determine the arm’s-length price in a sale of tangible property? How does the best-method rule affect the selection of a transfer pricing method?

> Bartholomew Corporation acquired 80 percent of the outstanding shares of Samson Company in Year 1 by paying $5,500,000 in cash. The fair value of Samson’s identifiable net assets is $5,000,000. Bartholomew uses the proportionate share of the acquired fir

> How can transfer pricing be used to reduce the amount of withholding taxes paid to a government on dividends remitted to a foreign stockholder?

> What is the performance evaluation objective of transfer pricing?

> What are the costs and benefits associated with entering into an advance pricing agreement?

> What is the maximum amount of foreign tax credit that a company will be allowed to take with respect to the income earned by a foreign operation?

> To which specific type of business combination does the concept of a group relate?

> Under what circumstances is it advantageous to take a deduction rather than a credit for taxes paid in a foreign country?

> What are the mechanisms used by countries to provide relief from double taxation?

> What are the different ways in which income earned in one country becomes subject to double taxation?

> What is the difference between the worldwide and territorial approaches to taxation?

> What is a tax haven? How might a company use a tax haven to reduce income taxes?

> Why might the effective tax rate paid on income earned within a country be different from that country’s national corporate income tax rate?

> Philosopher Stone Inc. incurred costs of $20,000 to develop an intranet Web site for internal use. The intranet will be used to store information related to company policies, customers, and products. Access to the intranet is password-protected and is re

> What procedures are used to translate the foreign currency income of a foreign branch into U.S. dollars for U.S. tax purposes? What procedures are used to translate the foreign currency income of a foreign subsidiary?

> What are the four factors that will determine the manner in which income earned by a foreign operation of a U.S. taxpayer will be taxed by the U.S. government?

> Under what circumstances will the income earned by a foreign subsidiary of a U.S. taxpayer be taxed as if it had been earned by a foreign branch?

> What is a group? Compare and contrast the different concepts of a group.

> What is a controlled foreign corporation? What is Subpart F income?

> What is a tax treaty? What is one of most important benefits provided by most tax treaties?

> How does the foreign tax credit basket system used in the United States affect the excess foreign tax credits generated by a U.S.-based company?