TestBank financial accounting 2n spiceland app e

Countries that have different rules for financial accounting and tax accounting, rely more on equity financing, and have historical political and economic ties with Great Britain are ref

Student: _

information than in code law countries (such as France and Germany)

True False

Japan), accounting earnings tend to be lower so companies can minimize tax payments

True False

emphasis on reporting the ability of the company to earn profits for its investors rather than the ability to repay debt

True False

True False

accounting standards

True False

True False

True False

Union (EU), either require or permit the use of IFRS

True False

U.S GAAP and IFRS

True False

10 The FIFO inventory method is not allowed under IFRS

True False

11 IFRS allows, but does not require, revaluation of property, plant and equipment to fair value

True False

12 Under U.S GAAP, development expenditures are capitalized, while under IFRS, these expenditures must

be expensed immediately

True False

13 Under IFRS, inventory write-downs due to using the lower-of-cost-or-market rule are allowed to be reversed in a future year if the market value subsequently increases

True False

14 When preparing a statement of cash flows, IFRS allows companies to report cash outflows from interest payments as either operating or financing cash flows, while U.S GAAP requires these outflows to be reported as only operating activities

True False

15 When preparing a statement of cash flows, IFRS allows companies to report cash inflows from interest and dividends as either operating or investing cash flows, while U.S GAAP requires these inflows to be reported as only operating activities

True False

16 IFRS stands for:

A Independent Financial Reporting System

B International Financing Reform System

C International Financial Reporting Standards

D International Financial Regulation of Securities

17 Which of the following characteristics of a country most likely affects the extent of companies' financial disclosure practices?

A Inflation

B Tax laws

C Population

D Culture

18 Which of the following is not a reason why accounting differs across countries?

A Culture

B Population

C Tax laws

D Sources of financing

19 Countries that have different rules for financial accounting and tax accounting, rely more on equity

financing, and have historical political and economic ties with Great Britain are referred to as what types of countries?

A Code law countries

B European Union countries

C Common law countries

D Conformist countries

20 Countries that have similar rules for financial accounting and tax accounting, rely more on debt financing, and have historical political and economic ties with Germany are referred to as what types of countries?

A Code law countries

B European Union countries

C Common law countries

D Conformist countries

21 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

22 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

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

A IASB

B SEC

C FASB

D IOSCO

24 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

25 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

26 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

27 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

28 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

29 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

30 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

31 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

32 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

33 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

34 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

35 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

36 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 as cash outflows from financing activities?

A $10,000

B $2,000

C $5,000

D $0

37 How is the organization responsible for standard setting in the U.K different from that in France? Which of these organizations is closer to the FASB in the U.S.?

38 Describe at least five reasons why accounting practices differ across countries Which reason do you think

is most important? Explain why

39 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

40 What does it mean to revalue a long-term asset? How do U.S GAAP and IFRS differ regarding revaluation

of long-term assets?

41 How is preferred stock reported differently under U.S GAAP and IFRS? Do you think preferred stock is a liability or an equity item? Why?

42 Listed below are seven reasons why accounting practices differ across countries followed by a list of descriptions Match each description with the best reason placing the letter designating the reason in the space provided

1 Inflation

The extent of public disclosure depends on the

secretiveness of society

2 Political and

economic ties

In some countries, asset values increase rapidly because of the general price level changes

3 Culture

Countries share business activities and have political

connections

4 Tax laws

Some countries rely more heavily on debt capital than on equity capital to fund operations

5 Legal system

Common law countries rely more heavily on public

information

6 Economic

development

More developed economies have more complex

business transactions

7 Sources

of financing

Alignment between financial reporting and tax

reporting rules

43 Below are seven reasons for differences in accounting practices among countries For each reason, at least two options are provided For each reason, select the option that best describes the United States

Low inflationInflation

5 Common law

Political and economic

ties

44 Below are seven reasons for differences in accounting practices among countries For each reason, at least two options are provided For each reason, select the option that best describes Germany

1 Similar tax and

3 Developed economy

Sources of financing (a) More equity financing

App_E Key

1 TRUE

2 TRUE

3 FALSE

4 TRUE

5 TRUE

6 TRUE

7 FALSE

8 TRUE

9 TRUE

10 FALSE

11 TRUE

12 FALSE

13 TRUE

14 TRUE

15 TRUE

16 C

17 D

18 B

19 C

20 A

21 C

22 D

23 A

24 B

25 A

26 C

27 A

28 D

29 C

30 C

31 A

32 D

33 B

34 A

35 D

36 A

37 The organization responsible for standard setting in the U.K is a private standard setter In France, the organization responsible for standard setting is part of the government The U.K is closer to the format used for standard setting in the U.S., as both countries develop standards using a private standard setter.

38 Financial accounting standards and practices differ from country to country for many reasons, including different legal systems, the influence of tax laws, sources of financing, inflation, culture, political influence of other countries, and the level of economic development See Illustration D-1 in the textbook for further details.

Legal system (common law vs code law) is often used as a way to describe overall differences in accounting practices between countries Common law countries, such as the U.S., U.K., Australia, and Canada, have separate rules for financial accounting and tax accounting, rely more on equity financing, and have political and economic ties with Britain Code law countries such as those in Central Europe and Japan, have similar rules for financial accounting and tax accounting, rely more on debt financing, and many have political and economic ties with Germany.

39 LIFO is allowed under U.S GAAP, but not under IFRS U.S companies currently using LIFO will lobby to keep this method because a switch from LIFO would greatly increase taxes for many U.S companies.

40 To revalue a long-term asset is to periodically adjust the asset to fair value Under U.S GAAP, companies are not allowed to revalue long-term

assets to fair value for financial reporting purposes IFRS allows, but does not require, revaluation of long-term assets to fair value.

41 Under U.S GAAP, preferred stock is usually recorded as stockholders' equity with dividends reported as a reduction of retained earnings Under IFRS, most preferred stock is reported as debt with the dividends reported in the income statement as interest expense.

As we learned in Chapter 10, preferred stock has characteristics of both liabilities and stockholders' equity Preferred stock can have characteristics nearly identical to bonds or characteristics nearly identical to common stock.

42 Culture :: The extent of public disclosure depends on the secretiveness of society. and Inflation :: In some countries, asset values increase rapidly because of the general price level changes. and Political and economic ties :: Countries share business activities and have political

connections. and Sources of financing :: Some countries rely more heavily on debt capital than on equity capital to fund operations. and Legal system :: Common law countries rely more heavily on public information. and Economic development :: More developed economies have more complex business transactions. and Tax laws :: Alignment between financial reporting and tax reporting rules.

43 Common law :: Legal system Options and Different tax and financial accounting rules :: Tax laws and More equity financing :: Sources of financing and Transparent :: Culture and British ties :: Political and economic ties and Developed economy :: Economic development

44 Code law :: Legal system Options and Similar tax and financial accounting rules :: Tax laws and More debt financing :: Sources of financing (a) More equity financing and Low inflation :: Inflation and Secretive :: Culture and German ties :: Political and economic ties and Developed economy :: Economic development

App_E Summary

Learning Objective: AppE-01 Determine the financial statement effects of inventory errors 18 Learning Objective: AppE-02 Understand the role of the International Accounting Standards Board (IASB) in the

development of International Financial Reporting Standards (IFRS).

5 Learning Objective: AppE-03 Recognize the major differences between U.S GAAP and IFRS 21