What are the circumstances under which a subsidiary could, and perhaps should, be excluded from consolidation?
> 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?
> What are excess foreign tax credits? How are they created and how can companies use them?
> How can a country’s tax system affect the manner in which an operation in that country is financed by a foreign investor?
> What are the advantages and disadvantages of using measures such as operating income before depreciation (OIBD) or earnings before interest, taxes, depreciation, and amortization (EBITDA) rather than net income in comparing profitability across foreign c
> In what ways does the timeliness of the publication of financial information differ across countries?
> During Year 1, Reforce Company conducted research and development on a new product. By March 31, Year 2, the company had determined the new product was technologically feasible, and the company obtained a patent for the product in April, Year 2. The comp
> PART I The framework created by Professor Sidney Gray in 1988 to explain the development of a country’s accounting system is presented in the chapter in Exhibit 2.8. Gray theorized that culture has an impact on a countryâ€
> How can more disclosure in the notes to the financial statements facilitate the analysis of foreign financial statements?
> Which balance sheet accounts give rise to purchasing power gains, and which accounts give rise to purchasing power losses?
> A foreign company prepares its financial statements in a foreign language and does not provide any convenience translations. How might this affect an analyst’s decision to invest in this company?
> Why should the fact that a foreign company presents its financial statements in a foreign currency present no significant problems in analyzing those statements?
> What are potential problems in using commercial databases as the source of financial statement information for foreign companies?
> A foreign company did not capitalize any interest in the current or past years, although such capitalization is required under U.S. GAAP. Why does an adjustment to reconcile this item to U.S. GAAP affect assets, expenses, and beginning retained earnings?
> How might differences across countries in the extent to which debt versus equity is the major source of financing affect profit margins, debt-to-equity ratios, and return on equity?
> How might differences in the extent to which countries apply the accounting concept of conservatism (some countries are more conservative than others) affect profit margins, debt-to-equity ratios, and returns on equity?
> Why should analysts be careful in comparing financial ratios across companies in different countries?
> What are the different features of financial statements that a foreign company might “translate” in a convenience translation?
> Define control. When does control exist in accordance with IAS 27?
> Stratosphere Company acquires its only building on January 1, Year 1, at a cost of $4,000,000. The building has a 20-year life, zero residual value, and is depreciated on a straight-line basis. The company adopts the revaluation model in accounting for b
> How does a company determine whether sales or noncurrent assets located in an individual foreign country are material?
> In what ways do International Financial Reporting Standards (IFRS) address the issue of accounting for changing prices (inflation)?
> Why is return on assets (net income/total assets) generally smaller under current cost accounting than under historical cost accounting?
> What are the major differences in the calculation of income between the historical cost (HC) model and the current cost (CC) model of accounting?
> What are the major differences in the calculation of income between the historical cost (HC) model and the general purchasing power (GPP) model of accounting?
> What types of entity-wide disclosures are required by IFRS 8?
> What are the major differences in the segment information required to be reported in accordance with IFRS and in accordance with U.S. GAAP?
> In accordance with IFRS 8, how does a company determine which operating segments to report separately?
> Why is it important that, in countries with high inflation, financial statements be adjusted for inflation?
> Why might a company want to hedge its balance sheet exposure? What is the paradox associated with hedging balance sheet exposure?
> Explain why the legal concept of control may be appropriate in some countries, such as Japan.
> Quantacc Company began operations on January 1, Year 1, and uses IFRS to prepare its financial statements. Quantacc reported net income of $100,000 in Year 5 and had stockholders’ equity of $500,000 at December 31, Year 5. The company wishes to determine
> Which translation method does U.S. GAAP require for operations in highly inflationary countries? What is the rationale for mandating use of this method?
> What does the term functional currency mean? How is the functional currency determined under IFRS and under U.S. GAAP?
> What are the major differences between IFRS and U.S. GAAP in the translation of foreign currency financial statements?
> How does a parent company determine the appropriate method for translating the financial statements of a foreign subsidiary?
> What are the major procedural differences in applying the current rate and temporal methods of translation?
> What is the concept underlying the current rate method of translation? What is the concept underlying the temporal method of translation? How does balance sheet exposure differ under these two methods?
> What factors create a balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure?
> How are gains and losses on foreign currency borrowings used to hedge the net investment in a foreign subsidiary reported in the consolidated financial statements?
> What are the two major conceptual issues that must be resolved in translating foreign currency financial statements?
> How is the fair value of a foreign currency forward contract determined? How is the fair value of an option determined?
> On January 1, Year 1, Holzer Company hired a general contractor to begin construction of a new office building. Holzer negotiated a $900,000, five-year, 10 percent loan on January 1, Year 1, to finance construction. Payments made to the general contracto
> Why might a company prefer a foreign currency option rather than a forward contract in hedging a foreign currency firm commitment? Why might a company prefer a forward contract over an option in hedging a foreign currency asset or liability?
> How does the timing of hedges of the following differ? a. Foreign-currency-denominated assets and liabilities. b. Foreign currency firm commitments. c. Forecasted foreign currency transactions.
> What does the word hedging mean? Why do companies hedge foreign exchange risk?
> What factors create a foreign exchange gain on a foreign currency transaction? What factors create a foreign exchange loss?
> A company makes an export sale denominated in a foreign currency and allows the customer one month to pay. Under the two-transaction perspective, accrual approach, how does the company account for fluctuations in the exchange rate for the foreign currenc
> In what way is the accounting for a foreign currency borrowing more complicated than the accounting for a foreign currency account payable?
> How are changes in the fair value of an option accounted for in a cash flow hedge? In a fair value hedge?
> What are the differences in accounting for a forward contract used as a cash flow hedge of (a) a foreign-currency-denominated asset or liability and (b) a forecasted foreign currency transaction?
> How are foreign currency derivatives such as forward contracts and options reported on the balance sheet?
> What is an onerous contract? How are onerous contracts accounted for?
> Why is the principle of prudence clearly established in the German law?
> What is the Tokyo agreement?
> What was the accounting Big Bang in Japan?
> How have cultural factors influenced accounting practices in Japan?
> Identify three features of the Chinese accounting profession that are different from its counterparts in Anglo-American countries.
> What are the main pressures for accounting regulation in modern China?
> Recently, the regulators in the United Kingdom have placed increased emphasis on the importance of narrative reporting in the financial statements published by companies. Explain.
> What was the main objective of the discussion paper entitled “Louder than Words,” published by the FRC in 2009?
> What are the main features of the approach taken in the United Kingdom in setting accounting standards?
> Xanxi Petrochemical Company provided the following reconciliation from IFRS to U.S. GAAP in its most recent annual report (amounts in thousands of RMB): Required: a. Explain why U.S. GAAP adjustment (a) results in an addition to net income. Explain w
> What is the role of the UK Financial Reporting Council?
> What has been the impact of EU membership on accounting regulation in the United Kingdom?
> How have economic reforms affected the demand for accounting services in China?
> What is an important contribution that Mexican accounting has made to international accounting?
> What are the main external factors that have influenced financial reporting in Mexico in recent years?
> What is the Professional Mutual Recognition Agreement (PMRA) signed by NAFTA participants in September 2002?
> What is the role of the National Banking and Securities Commission in the area of financial reporting by Mexican companies?
> “BilMoG is not ‘IFRS light’; instead it is ‘German GAAP complex’.” Do you agree? Explain.
> What was the main focus of the GASB’s work in 2009?
> 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?
