TestBank financial accounting 2n spiceland app e

App_E Student: _ In common law countries (such as the U.S., the U.K., and Canada), greater emphasis is placed on public information than in code law countries (such as France and Germany) True For countries whose tax standards are closely tied to financial reporting standards (Continental Europe and Japan), accounting earnings tend to be lower so companies can minimize tax payments True False By late 2007, over 100 jurisdictions, including China, Australia, and all of the countries in the European Union (EU), either require or permit the use of IFRS True False The primary objective of the IASB is to develop accounting standards in the U.S True False Convergence of accounting practices is expected to increase the flow of investment across borders True False More economically developed economies (the U.S and the U.K.) have a need for more complex accounting standards True False Some countries are more secretive (Brazil and Switzerland), leading to fewer financial disclosures True False In countries where debt financing is more common (Japan) compared to equity financing, there is greater emphasis on reporting the ability of the company to earn profits for its investors rather than the ability to repay debt True False False The Norwalk Agreement formalizes the commitment between the FASB and IASB to the convergence of 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 B C D Independent Financial Reporting System International Financing Reform System International Financial Reporting Standards 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 B C D Inflation Tax laws Population Culture 18 Which of the following is not a reason why accounting differs across countries? A B C D Culture Population Tax laws 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 B C D Code law countries European Union countries Common law countries 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 B C D Code law countries European Union countries Common law countries Conformist countries 21 When a country establishes financial reporting rules that closely resemble tax reporting rules, reported accounting profits tend to be: A B C D Negative Higher Lower Misreported 22 One motivation for reducing differences in accounting practices across countries is to: A B C D Decrease the flow of international capital Allow greater competition among companies Reduce companies' tax burdens 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 B C D IASB SEC FASB 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 B C D Receivables Long-term assets Inventory Research and development expenditures 26 Which inventory cost flow assumption is allowed under U.S GAAP but not under IFRS? A B C D Specific identification FIFO LIFO Average cost 27 Which of the following statements is true regarding revaluation of property, plant, and equipment to fair value? A B C D Only IFRS allows revaluation of property, plant, and equipment to fair value Only U.S GAAP allows revaluation of property, plant, and equipment to fair value Both U.S GAAP and IFRS allow revaluation of property, plant, and equipment to fair value 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 B C D Much greater Slightly greater About the same Much less 29 Why are some U.S companies opposed to elimination of the LIFO inventory method? A B C D Inventory amounts are more difficult to calculate under FIFO LIFO most likely matches actual flow of inventory Increased tax burden 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 B C D Increase reported net income in the income statement Decrease tax obligations to the Internal Revenue Service (IRS) Increase reported net income and tax obligations 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 B C D $100,000 $150,000 $200,000 $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 B C D $100,000 $150,000 $200,000 $300,000 33 Would a company be more likely to report a contingent liability under U.S GAAP or IFRS? A B C D U.S GAAP IFRS Equally likely 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 B C D $0 $200,000 $300,000 $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 B C D $0 $200,000 $300,000 $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 B C D $10,000 $2,000 $5,000 $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 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 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 Inflation Political and economic ties Culture Tax laws Legal system The extent of public disclosure depends on the secretiveness of society. In some countries, asset values increase rapidly because of the general price level changes. Countries share business activities and have political connections. Some countries rely more heavily on debt capital than on equity capital to fund operations. Common law countries rely more heavily on public information. Economic development More developed economies have more complex business transactions. 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 Transparent More equity financing Different tax and financial accounting rules British ties Common law Developed economy Legal system Options Tax laws Sources of financing Culture Political and economic ties Economic development 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 Similar tax and financial accounting rules Low inflation Legal system Options Tax laws Developed economy Sources of financing (a) More equity financing More debt financing Inflation Secretive German ties Code law Culture Political and economic ties Economic development App_E Key TRUE TRUE FALSE TRUE TRUE TRUE FALSE TRUE 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 Category AACSB: Analytic AACSB: Reflective AACSB: Reflective Thinking AICPA: Critical Thinking AICPA: Measurement AICPA: Reporting Blooms: Analysis Blooms: Application Blooms: Comprehension Blooms: Knowledge Blooms: Synthesis Difficulty: Easy Difficulty: Hard Difficulty: Medium Learning Objective: AppE-01 Determine the financial statement effects of inventory errors Learning Objective: AppE-02 Understand the role of the International Accounting Standards Board (IASB) in the development of International Financial Reporting Standards (IFRS) Learning Objective: AppE-03 Recognize the major differences between U.S GAAP and IFRS Spiceland - Appendix E # of Questions 36 24 15 19 14 15 27 18 21 44 ... most likely have what effect(s)? A B C D Increase reported net income in the income statement Decrease tax obligations to the Internal Revenue Service (IRS) Increase reported net income and tax... Legal system The extent of public disclosure depends on the secretiveness of society. In some countries, asset values increase rapidly because of the general price level changes. Countries... 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