Question: What are the hypothesized relationships between the

> What are the main external factors that have influenced financial reporting in Germany in recent years?

> In Year 1, in a project to develop Product X, Lincoln Company incurred research and development costs totaling $10 million. Lincoln is able to clearly distinguish the research phase from the development phase of the project. Research-phase costs are $6 m

> Why does tax law have a strong influence on German accounting?

> How might the liberalization of accounting and auditing services in China result in an improved level of investor protection?

> W hat is the difference in measuring compensation expense associated with stock options that vest on a single date (cliff vesting) and in installments (graded vesting)?

> What is the basis for determining compensation cost in an equity-settled share-based payment transaction with nonemployees? With employees?

> How does a company measure the net pension benefit liability (asset) to report on the balance sheet under IFRS and U.S. GAAP?

> In a sale of receivables described as a pass-through arrangement, under what conditions can receivables be derecognized?

> How can use of the “fair value option” solve the problem of an accounting mismatch?

> Under what conditions should preferred shares be recognized as a liability on the balance sheet?

> What is a contingent liability? What is the financial reporting treatment for contingent liabilities?

> What are the five steps to follow in revenue recognition as proposed in the IASB/FASB Exposure Draft on revenue from contracts with customers?

> In its 2003 annual report, Honda Motor Company Ltd. states: Honda’s manufacturing operations are principally conducted in 25 separate factories, 5 of which are located in Japan. Principal overseas manufacturing factories are located in the United States

> What is a customer loyalty program, and how is such a program accounted for?

> Under what conditions may revenue be recognized on a “bill-and-hold” sale?

> What approaches are used to recognize revenue from the rendering of services? Under what conditions is each of these approaches used?

> What are the criteria that must be met in order to recognize revenue from the sale of goods?

> What approaches are available for disclosing the relationship between tax expense and accounting profit?

> Which income tax rates should be used in accounting for income taxes?

> How is an impairment loss on property, plant, and equipment determined and measured under IFRS? How does this differ from U.S. GAAP?

> How is the revaluation surplus handled under the revaluation model?

> Which items of property, plant, and equipment may be accounted for under the revaluation model, and how frequently must revaluation occur?

> What are the two models allowed for measuring property, plant, and equipment at dates subsequent to original acquisition?

> The appendix to this chapter describes what is commonly referred to as Anglo-Saxon accounting. Required: Explain why Anglo-Saxon accounting might be of interest to Chinese accounting regulators.

> What is the difference between IFRS and U.S. GAAP with regard to the recognition of gains and losses on sale–leaseback transactions?

> How does application of the lower of cost or market rule for inventories differ between IFRS and U.S. GAAP?

> How do the criteria for determining whether a lease qualifies as a finance (capitalized) lease differ between IFRS and U.S. GAAP?

> What are the differences in the amount of borrowing costs that can be capitalized under IFRS and U.S. GAAP?

> What is the process for determining whether goodwill allocated to a specific cash-generating unit is impaired?

> How are internally generated intangibles handled under IFRS? How does this differ from U.S. GAAP?

> What are the guidelines on selecting and changing accounting policies?

> What are the three major types of intangible asset, and how does the accounting for them differ?

> How does the classification of interest and dividends in the statement of cash flows differ between IFRS and U.S. GAAP?

> D o you see a major change of emphasis in the harmonization process since the establishment of the IASB? Explain.

> Refer to Exhibit 3.6 in this chapter and note the countries that do not permit domestic listed companies to use IFRS. Required: Identify three countries from this group that are likely to have different reasons for not permitting the use of IFRS by dome

> What is the IASB’s principles-based approach to accounting standard-setting?

> How does the structure of the IASB help to establish its legitimacy as a global standard-setter?

> Why was IOSCO’s endorsement of IASs so important to the IASC’s efforts?

> How has the U.S. SEC policy toward IFRS changed?

> What are the potential benefits that a multinational corporation could derive from the international convergence of accounting standards?

> In what way is the IASB’s Framework intended to assist firms in preparing IFRS-based financial statements?

> Would the worldwide adoption of IFRS result in worldwide comparability of financial statements? Why or why not?

> What information is provided in a statement of added value?

> How are the various costs that comprise cost of goods sold reflected in a “type of expenditure” format income statement?

> What are the different ways in which IFRS might be used within a country?

> Assume that you have been invited to advise the newly established accounting oversight body in one of the former Eastern European countries that became a member of the EU in May 2004. The accounting oversight body is charged with the task of identifying

> The Vanguard Group is an investment fi rm with more than 50 different mutual funds in which the public may invest. Among these funds are 13 international funds that concentrate on investments in non-U.S. stocks and bonds. One of these is the Internationa

> According to Nobes, what are the two most important factors influencing differences in accounting systems across countries?

> A re there any major accounting issues that have not yet been covered by IFRS?

> What are the major problems caused by worldwide accounting diversity for international portfolio investment?

> Who are the major providers of capital (financing) for business enterprises? What influence does the relative importance of equity financing in a country have on financial statement disclosure?

> How does the relationship between financial reporting and taxation affect the manner in which income is measured for financial reporting purposes?

> What are the two major types of legal systems used in the world? How does the type of legal system affect accounting?

> How does harmonization differ from convergence?

> What would be the advantages of having a single set of accounting standards used worldwide?

> Since 2005, publicly traded companies in the European Union have been required to use IFRS in preparing their consolidated financial statements. Required: a. Explain the EU’s objective in requiring the use of IFRS. b. Identify and describe two issues th

> Where might one find information that could be used to measure the “multi nationality” of a company?

> What are some of the issues that arise in evaluating and maintaining control over foreign operations?

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

> How important is foreign direct investment to the world economy?

> Why might a company be interested in investing in an operation in a foreign country (foreign direct investment)?

> How important is international trade (imports and exports) to the world economy?

> The Financial Times, on Tuesday, April 13, 2004, made the following comment in its editorial “Parmalat: Perennial Lessons of European Scandal: Urgent need for better enforcement and investor scepticism”: After the accounting scandals in the US, there w

> T he objective of convergence between IFRS and U.S. GAAP is no longer a priority for the IASB. Required: Discuss the possible reasons for, and the consequences of, the IASB’s above decision.

> The SEC lifted the requirement for foreign companies that have used IFRS as the basis for preparing their financial statements: that to be eligible to list their shares in U.S. stock exchanges, they should reconcile their financial statements using U.S.

> “The IASB has been repeatedly accused of devising accounting standards that pay insufficient attention to the concerns and practices of companies. Some European banks and insurers complain about poor due process by the IASB, and Frits Bolkestein, Europea

> The IASB’s main objective is to develop a set of high-quality standards for financial reporting by companies at the international level. Required: Critically examine the possibility of achieving this objective.

> Geneva Technology Company (GTC), a Swiss-based company founded in 1999, is considering the use of IFRS in preparing its annual report for the year ended December 31, 2013. You are the manager of GTC’s fixed assets accounting department. Required: Identi

> Five factors are often mentioned as affecting a country’s accounting practices: (a) legal system, (b) taxation, (c) providers of financing, (d) inflation, and (e) political and economic ties. Required: Consider your home country. Identify which of

> Refer to Nobes’s judgmental classification of accounting systems in Exhibit 2.5 and consider the following countries: Austria, Brazil, Finland, Ivory Coast, Russia, and South Africa. Required: Identify the family of accounting in which

> Cultural dimension index scores developed by Hofstede for six countries are reported in the following table: Required: Using Gray’s hypothesis relating culture to the accounting value of secrecy, rate these six countries as relative

> Refer to the income statements presented in Exhibits 2.9, 2.10, 2.11, 2.12, and 2 .13 for Callaway Golf Company, Südzucker AG, Cemex S.A.B. de CV, Sol Meliá SA, and Thai Airways. Required: a. Calculate gross profit margin (g

> Various attempts have been made to reduce the accounting diversity that exists internationally. This process is known as convergence and is discussed in more detail in Chapter 3. The ultimate form of convergence would be a world in which all countries fo

> As noted in the chapter, diversity in accounting practice across countries generates problems for a number of different groups. Required: Answer the following questions and provide explanations for your answers. a. Which is the greatest problem arising

> Astra Zeneca PLC, based in the United Kingdom, and Abbott Laboratories, based in the United States, are two of the largest pharmaceutical firms in the world. The following information was provided in each company’s 2012 annual report.

> The London Stock Exchange (LSE) provides a list of companies listed on the exchange on its Web site (www.londonstockexchange.com) under “Statistics” and “List of Companies.” Required: a. Determine the number of foreign companies listed on the LSE and th

> The New York Stock Exchange (NYSE) provides a list of non-U.S. companies listed on the exchange on its Web site (www.nyse.com). (Hint: Search the Internet for “NYSE List of Non-U.S. Listed Issuers.”) Required: a. Determine the number of foreign companie

> Global Electronics Company (GEC), a U.S. taxpayer, manufactures laser guitars in its Malaysian operation (LG-Malay) at a production cost of $120 per unit. LG Malay guitars are sold to two customers in the United States—Electronic Superstores (a GEC wholl

> Cooper Grant is the president of Acme Brush of Brazil, the wholly owned Brazilian subsidiary of U.S.-based Acme Brush Inc. Cooper Grant’s compensation package consists of a combination of salary and bonus. His annual bonus is calculated as a predetermine

> Sony Corporation reported the following in the Notes to Consolidated Financial Statements included in the company’s 2012 annual report on Form 20-F (p. F-49): Foreign Exchange Forward Contracts and Foreign Currency Option Contracts Foreign exchange forwa

> Sony Corporation reported the following in the summary of Significant Accounting Policies included in the company’s 2012 annual report on Form 20-F (p. F-16): Translation of Foreign Currencies All asset and liability accounts of foreign subsidiaries and

> The IRS has the authority to impose penalties on companies that significantly underpay taxes as a result of inappropriate transfer pricing. Acme Company transfers a product to a foreign affiliate at $15 per unit, and the IRS determines the correct price

> Ranger Company, a U.S. taxpayer, manufactures and sells medical products for animals. Ranger holds the patent on Z-meal, which it sells to horse ranchers in the United States. Ranger Company licenses its Bolivian subsidiary, Yery SA, to manufacture and s

> Denker Corporation has a wholly owned subsidiary in Sri Lanka that manufactures wooden bowls at a cost of $3 per unit. Denker imports the wooden bowls and sells them to retailers at a price of $12 per unit. The following information applies: Import dut

> ABC Company has subsidiaries in Countries X, Y, and Z. Each subsidiary manufactures one product at a cost of $10 per unit that it sells to each of its sister subsidiaries. Each buyer then distributes the product in its local market at a price of $15 per

> Guari Company, based in Melbourne, Australia, has a wholly owned subsidiary in Taiwan. The Taiwanese subsidiary manufactures bicycles at a cost equal to A$20 per bicycle, which it sells to Guari at an FOB shipping point price of A$100 each. Guari pays sh

> Smith-Jones Company, a U.S.-based corporation, owns 100 percent of Joal SA, located in Guadalajara, Mexico. Joal manufactures premium leather handbags at a cost of 500 Mexican pesos each. Joal sells its handbags to SmithJones, which sells them under Joal

> Akku Company imports die-cast parts from its German subsidiary that are used in the production of children’s toys. Per unit, part 169 costs the German subsidiary $1.00 to produce and $0.20 to ship to Akku Company. Akku Company uses part 169 to produce a

> Litchfield Corporation is a U.S.-based manufacturer of fashion accessories that produces umbrellas in its plant in Roanoke, Virginia, and sells directly to retailers in the United States. As chief financial officer, you are responsible for all of the com

> Superior Brakes Corporation manufactures truck brakes at its plant in Mansfield, Ohio, at a cost of $10 per unit. Superior sells its brakes directly to U.S. truck makers at a price of $15 per unit. It also sells its brakes to a wholly owned sales subsidi

> Lahdekorpi OY, a Finnish corporation, owns 100 percent of Three-O Company, a subsidiary incorporated in the United States. Required: Given the limited information provided, determine the best transfer pricing method and the appropriate transfer price in

> Bush Inc. has total income of $500,000. Bush’s Polish branch has foreign source income of $200,000 and paid taxes of $38,000 to the Polish government. The U.S. corporate tax rate is 35 percent. What is Bush’s overall f

> The exchange rate between the U.S. dollar (US$) and the euro (€) remained constant at €1.00  5  US$1.50 throughout 2013. Elizabeth Welch (a U.S. citizen) lives and works in France. In 2013, she earned income in France of €100,000, and paid taxes to the l

> The exchange rate between the U.S. dollar (US$) and the Hong Kong dollar (HK$) remained constant at HK$8.00 5 US$1.00 throughout 2013. Horace Gardner (a U.S. citizen) lives and works in Hong Kong. In 2013, Gardner earned income in Hong Kong of HK$960,000

> Brown Corporation has an affiliate in France (Brun SA) that sells products manufactured at Brown’s factory in Columbia, South Carolina. In the current year, Brun SA earned €10 million before tax. Assume that the effective tax rate Brun SA pays in France

> Use the information provided in problem 25. Now assume that Intec Corporation’s Chinese operation is organized as a branch, and repatriates after-tax profits of RMB 200,000 to Intec on October 1. Required: Determine the following related to the income e

> Intec Corporation (a U.S.-based company) has a wholly owned subsidiary located in Shanghai, China, that generated income before tax of 500,000 Chinese renminbi (RMB) in the current year. The Chinese subsidiary paid Chinese income taxes at the rate of 25

> The corporate income tax rates in two countries, A and B, are 40 percent and 25 percent, respectively. Additionally, both countries impose a 30 percent withholding tax on dividends paid to foreign investors. However, a bilateral tax treaty between A and

> Heraklion Company (a U.S.-based company) is considering making an equity investment in an Australian manufacturing operation. The total amount of capital, in Australian dollars (A$), that Heraklion would need to invest is A$1,000,000. Heraklion has three

> .S. International Corporation (USIC), a U.S. taxpayer, has investments in Foreign Entities A–G. Relevant information for these entities for the current fiscal year appears in the following table: Additional Information 1. USICâ&