Chap015 Practice

Chapter 15 Global Business and Accounting
Chapter 15
Global Business and Accounting
True / False Questions
1. An international joint venture involves the creation of a new company that is owned by two
or more firms from different countries.
True False
2. In a planned economy, ownership of land and the means of production are private, and
markets dictate the allocation of resources and the output among segments of the economy.
True False
3. Differences in accounting practices among countries reflect the different sources of capital
in those countries.
True False
4. A wholly owned international subsidiary exists when a company owns 100% of the equity
in a U.S. foreign subsidiary.
True False
5. Although cultural differences are significant in business dealings, they pose no difficulties
to the design and implementation of an accounting system.
True False
6. In a planned economy, the government uses central planning to allocate resources and
determines output among various segments of the economy.
True False
15-1
7. The standards issued by the International Accounting Standards Board must be followed by
all multinational companies.
True False
8. An exchange rate represents the price of one currency stated in terms of another.
True False
9. Having a liability that is fixed in terms of a foreign currency results in a loss for the debtor
if the exchange rate falls between the transaction date and the payment date.
True False
10. The statement that "the yen has fallen against the dollar" means that the yen has become
less valuable relative to the dollar.
True False
11. U.S. cultural traits include high uncertainty avoidance and a long-term orientation.
True False
12. Whenever an American corporation sells merchandise to foreign companies, the

transaction must be stipulated in American dollars.
True False
13. An American corporation making purchases from foreign companies will experience gains
and losses from exchange rate fluctuations if (a) the purchase prices are stated in terms of the
foreign currency and (b) the purchases are made on account.
True False
15-2
14. Hedging refers to the strategy of taking offsetting positions so that gains in one currency
offset losses in another currency.
True False
15. A company has a "hedged position" when it has similar amounts of accounts receivable
and accounts payable in that same foreign currency.
True False
16. Payments made by U.S. companies to motivate foreign officials to undertake actions more
rapidly than they might otherwise are prohibited by the Foreign Corrupt Practices Act.
True False
17. One of the most important requirements of the Foreign Corrupt Practices Act is the
maintenance of an adequate system of international reporting.
True False
18. The Foreign Corrupt Practices Act distinguishes between influence peddling and
facilitating payments. The former is prohibited while the latter are allowed.
True False
19. The Foreign Corrupt Practices Act allows Americans doing business in countries where
bribes are legal to also make bribes.
True False
20. The accounting profession has been slow to develop in Asian countries because of strict
governmental control of accounting regulations.
True False
15-3
21. An international joint venture is a company owned by two or more companies from
different countries.
True False
22. Accounting as a profession did not exist in England prior to 1988.

True False
23. An increase in the exchange rate between a transaction date and the date of payment will
cause the debtor to incur a loss.
True False
24. As foreign exchange rates fall, United States based importers will lose and exporters will
gain.
True False
25. To convert a foreign currency into dollars, divide the foreign currency by the foreign
exchange rate.
True False
26. To convert a dollar amount into a foreign currency divide the dollar amount by the
exchange rate.
True False
27. A dollar that is stronger than the British pound would make travel to the United States
more attractive to British citizens.
True False
15-4
28. Future contracts are used by companies to hedge against losses in foreign currencies.
True False
29. "Convergence" means abandoning a country's financial reporting standards and replacing
them with the International financial Reporting Standard
True False
30. China, Japan & Australia have amended their current standards to converge with
International Financial Reporting Standards but the United States chooses to adopt the
International Financial Reporting Standards.
True False
31. "Adoption" means replacing current financial reporting standards with International
Financial Reporting Standards.
True False
Multiple Choice Questions
32. Accounting practices are affected by all of the following except:

A. Political systems
B. Economic systems
C. Technology and infrastructure
D. All of the above affect accounting systems
33. Establishing international accounting standards is the responsibility of

A. Securities and Exchange Commission
B. International Accounting Standards Board
C. Financial Accounting Standards Board
D. Accounting Association of America
15-5
34. Gains and losses from fluctuations in exchange rates should be shown on the
A. Balance sheet
B. Income statement
C. Statement of changes to owners' equity
D. Cash flow statement
35. On November 1 a French company purchased machinery from an American company for
800,000 euros when the exchange rate was $.83. When preparing financial statements on
December 31 when the rate for the euros was $.88, what amount of gain or loss should the
American company report?
A. $40,000 gain
B. $40,000 loss
C. $19,000 gain
D. No gain or loss would be reported
36. Of the following globalization strategies, which would be least demanding in terms of the
quantity and variety of accounting information required?
A. Exporting.
B. International licensing.
C. Joint ventures.
D. Establishing a wholly owned foreign subsidiary.
37. Which of the following does not affect the cost associated with producing and selling
goods and services in global markets?
A. Tariffs.
B. Duties.
C. Special trade zones.
D. All three affect the cost.
15-6
38. In Japan, financial reporting requirements are based primarily on the need to provide
information to:
A. Investors.
B. Government agencies.
C. Banks.
D. U.S. subsidiaries of Japanese companies.
39. Which of the following organizations is responsible for developing uniform worldwide
accounting standards?
A. The Securities Exchange Commission.
B. The International Accounting Standards Board.
C. The Financial Accounting Standards Board.
D. The International Organization of Accounting Boards.
40. Low individualism and high long-term orientation is indicative of which culture?
A. United States.
B. Great Britain.
C. Japan.
D. Germany.
41. The price of one currency stated in terms of another currency is the:
A. Current ratio.
B. Exchange rate.
C. Facilitating payment.
D. International clearing price.
42. When the government uses central planning to allocate resources and to determine output
among various segments of the economy, this is known as:
A. A dictatorship.
B. A democracy.
C. A planned economy.
D. A market economy.
15-7
43. If the exchange rate for a foreign currency (stated in dollars) has risen, a dollar will
purchase:
A. An increased amount of that foreign currency.
B. An unchanged amount of that foreign currency.
C. A smaller amount of that foreign currency.
D. An undetermined amount of that foreign currency.
44. Consider the following statement: "A strong dollar rose sharply against the British pound,
but fell slightly against the Japanese yen." This statement indicates that:
A. The British pound is a stronger currency than the Japanese yen.
B. The exchange rate for the yen, stated in dollars, is rising.
C. The exchange rate for the pound, stated in dollars, is rising.
D. The exchange rate for the yen, stated in pounds, is falling.
45. Assume the exchange rate for the Canadian dollar is rising relative to the U.S. dollar. An
American company will incur losses from this rising exchange rate if it is making:
A. Credit sales to Canadian companies at prices stated in Canadian dollars.
B. Credit purchases from Canadian companies at prices stated in U.S. dollars.
C. Credit sales to Canadian companies at prices stated in U.S. dollars.
D. Credit purchases from Canadian companies at prices stated in Canadian dollars.
46. Assume the exchange rate for the Mexican Peso is falling relative to the U.S. dollar. An
American company will incur losses from this falling exchange rate if the company is
making:
A. Credit sales to Mexican companies at prices stated in U.S. dollars.
B. Credit purchases from Mexican companies at prices stated in U.S. dollars.
C. Credit sales to Mexican companies at prices stated in Mexican Pesos.
D. Credit purchases from Mexican companies at prices stated in Mexican Pesos.
47. Which of the following is true about foreign trade zones?

A. They are illegal in the United States.
B. Goods imported into these designated U.S. areas are duty free until they leave the zone.
C. They have a special excise tax.
D. They are areas outside the United States that offer special tax treatments.
15-8
48. Blue Waters is an American company that does business with several Japanese
corporations. In recent months, Blue Waters has been reporting losses from increases in the
exchange rate of the Japanese yen. The majority of Blue Waters transactions with the Japanese
companies probably consist of:
A. Credit sales at prices stated in U.S. dollars.
B. Credit sales at prices stated in Japanese yen.
C. Credit purchases at prices stated in U.S. dollars.
D. Credit purchases at prices stated in Japanese yen.
49. A corporation that uses a strategy of hedging all contracts specifying a foreign currency
(i.e. foreign accounts receivable and foreign accounts payable):
A. Will always be better off than if the contracts were not hedged.
B. Recognizes a net loss if the foreign exchange rate increases.
C. Avoids net losses from fluctuations in foreign exchange rates.
D. Recognizes a net gain if the foreign exchange rate increases.
50. Samson Corporation buys a foreign currency future contract as a hedging strategy to
protect against possible losses from fluctuations in a particular foreign exchange. This
strategy suggests that Samson Corporation has:
A. Foreign accounts payable and expects the exchange rate to fall.
B. Foreign accounts receivable and expects the exchange rate to rise.
C. Foreign accounts payable and expects the exchange rate to rise.
D. Foreign accounts receivable and expects the exchange rate to fall.
51. Gains and losses from fluctuations in exchange rates on transactions carried out in a
foreign currency are reported in:
A. The balance sheet, as an adjustment to stockholders' equity.
B. The income statement.
C. The footnotes to the financial statements.
D. The statement of retained earnings.
15-9
52. A contract giving the right to receive a specified quantity of foreign currency at a future
date is known as:
A. Hedging.
B. Exchange rates.
C. Macquiladora.
D. Future contracts.
53. Under the Foreign Corrupt Practices Act, American business firms are required to:
A. Refuse to transact business in countries that sanction official corruption.
B. Report all bribery attempts to the International Monetary Fund and World Bank.
C. Maintain an adequate system of internal control limiting access to company assets to
authorized personnel.
D. All of the above are mandated by the Foreign Corrupt Practices Act.
In a recent financial journal, the exchange rate between the dollar and the British pound was
quoted in two ways:
54. Refer to the above data. The number of pounds equal to $50,000 on this date is:
A. £31,250.
B. £80,000.
C. Some other amount.
D. Depends upon whether the item is a receivable or a payable.
55. Refer to the above data. The number of dollars equivalent to £50,000 on this date is:
A. $31,250.
B. $80,000.
15-10
In a recent financial journal, the exchange rate between the dollar and the Japanese yen (¥)
was quoted two ways:
56. Refer to the above data. The number of Japanese yen equivalent to $40,000 on this date is:
(rounded to whole ¥)
A. ¥3,056,000.
B. ¥5,235,602
57. Refer to the above data. The number of dollars equivalent to ¥5,250,000 on this date is:
A. $40,110.00.
B. $687,172.50
58. Walblue imports a desk from a French manufacturer for sale in its chain of U.S. stores.
The cost of a desk to Walblue is 3,700 Euros. What is the dollar cost of one of these desks if
the exchange rate is currently 1.117 Euros per U.S. dollar? (round to nearest cent)
A. $1,117.00
B. $4,132,90
C. $3,312.44
D. Some other amount.
59. At the current exchange rate of $1.40 per British pound, a one-day pass to Worldwide
Theme Park of Florida sells for 45 pounds at travel agencies throughout Great Britain. If the
exchange rate increases to $1.70 per pound, what will happen to the price of a one-day pass
sold in Great Britain?
A. The price will be unchanged.
B. The price will fall to 37 pounds.
C. The price will increase to 54 pounds.
D. The price will fall by 12 pounds.
15-11
60. Rochester, Inc. purchased cameras from a Japanese company at a price of 4 million yen.
On the purchase date, the exchange rate was $0.0100 per Japanese yen, but when Rochester,
Inc., paid the liability, the exchange rate was $0.0103 per yen. When this foreign account
payable was paid, Rochester, Inc., recorded a:
A. Debit to Inventory of $1,200.
B. Loss of $1,200.
C. Credit to Accounts Payable of $41,200.
D. Gain of $1,200.
61. Hayden, Inc. purchased knobs from a Greek company for 185,000 Euros. On the purchase
date the exchange rate was $.80 per Euro, but when Hayden paid the liability, the exchange
rate was $.70 per Euro. When this foreign account payable was paid, Hayden, Inc., recorded
a:
B. Loss of $18,500.
D. Gain of $18,500.
62. Tuliptime, Inc. sold American fashions to a Japanese company at a price of 4 million yen.
On the sale date, the exchange rate was $.0100 per Japanese yen, but when Tuliptime received
payment from its customer, the exchange rate was $.0103 per Japanese yen. When the foreign
receivable was collected, Tuliptime:
A. Credited Sales for $1,200.
B. Debited Cash for $40,000.
C. Credited Gain on Fluctuation of Foreign Currency for $1,200.
D. Debited Loss on Fluctuation of Foreign Currency for $1,200.
63. Barter Corp. sold American telecommunications equipment to a British company for
650,000 pounds. On the sale date, the exchange rate was $1.65 per British pound, but when
Barter received payment from its customer, the exchange rate was $1.60 per pound. When the
foreign receivable was collected, Barter Enterprises:
B. Debited Cash for $1,040,000.
15-12
64. Flynn Corporation purchased bicycles from a British manufacturer at a price of 45,000
British pounds on November 15, 2009, with payment due in 60 days. Using the following
exchange rates, what gain or loss from currency fluctuations should be recognized in 2009
and 2010?
A. A $2,250 loss in 2009 and a $900 gain in 2010.

B. No gain or loss in 2009 and a $1,350 loss in 2010.
C. A $2,250 gain in 2009 and a $900 loss in 2010.
D. No gain or loss in 2009 and a $1,350 gain in 2010.
65. Exact Instruments sold equipment to a British research group at a price of 70,000 British
pounds on December 1, 2009, with payment due in 90 days. Using the following exchange
rates, what gain or loss from currency fluctuations should recognized in 2009 and 2010?
A. A $2,800 loss in 2009 and a$3,500 gain in 2010.

B. No gain or loss in 2009 and a $700 loss in 2010.
C. A $2,800 gain in 2009 and a $3,500 loss in 2010.
D. No gain or loss in 2009 and a $700 gain in 2010.
66. Trente Switch and Signal sold equipment to a Canadian transportation company at a price
of 300,000 Canadian dollars with payment due in 60 days. On the date of sale the exchange
rate was 1.50 Canadian dollars per U.S. dollar. Trente decided to hedge the risk of currency
fluctuations by purchasing 300,000 Canadian dollars with payment due in 60 days. If the
exchange rate in 60 days is 1.25 Canadian dollars per U.S. dollar, Trente Switch and Signal
will:
A. Recognize a net gain of $40,000 on the two transactions.
B. Recognize a $40,000 gain when it collects the receivable and incur a $40,000 loss when it
pays the liability.
C. Incur a $40,000 loss when it collects the receivable and recognize a $40,000 gain when it
pays the liability.
D. Incur a net loss of $40,000 on the two transactions.
15-13
Essay Questions
67. Accounting terminology

Listed below are nine technical accounting terms introduced in this chapter:
Each of the following statements may (or may not) describe one of these technical terms. In
the space provided below each statement, indicate the accounting term described, or answer
"None" if the statement does not correctly describe any of the terms.
(a) The strategy of creating offsetting positions so that losses from currency fluctuations will
be offset by gains resulting from the same fluctuations.
(b) The price of foreign currency, stated in terms of the domestic currency.
(c) An item likely to appear in the income statements of American-based importers when
foreign exchange rates are rising.
(d) The organization responsible for developing uniform worldwide accounting standards.
(e) Payments made to foreign officials to expedite paperwork.
(f ) The process of restating an amount of foreign currency in terms of the equivalent number
of U.S. dollars.
(g ) An item likely to appear in the income statements of American-based exporters when
foreign exchange rates are falling.
15-14
68. Importing transactions-journal entries

Striking Furs imports furs from Canada. In the space provided below, prepare journal entries
to record the following events.
Dec. 11, 2009: Purchased furs from Capable Trappers, Ltd., a Canadian corporation, at a price
of 25,000 Canadian dollars, due in 60 days. The current exchange rate is .85 U.S. dollars per
Canadian dollar. (Striking uses the perpetual inventory method; debit the Inventory account.)
Dec. 31, 2009: Striking made a year-end adjusting entry relating to the account payable to
Capable Trappers. The exchange rate at year-end is .89 U.S. dollars per Canadian dollar.
Feb. 9, 2010: Issued a check for $21,750 (U.S. dollars) to National Bank in full settlement of
the liability to Capable Trappers, Ltd. The exchange rate at this date is .87 U.S. dollars per
Canadian dollar.
15-15
69. Exporting transactions-journal entries

Jung Farms exports wheat to Germany. In the space provided below, prepare journal entries to
record the following events.
Nov. 15, 2010: Sold wheat to a German restaurant chain at a price of 2 million Euros, due in
90 days. The current exchange rate is .8 U.S. dollars per Euro. (Jung uses the periodic
inventory method.)
Dec. 3, 2010: Jung made a year-end adjusting entry relating to the account receivable from the
German restaurant chain. The exchange rate at year-end is .85 U.S. dollars per Euro.
Feb. 15, 2011: Received a check for $1,640,000 from the InterContinental Bank in full
settlement of the receivable from the German restaurant chain. The exchange rate at this date
is .82 U.S. dollars per Euro.
15-16
70. Foreign currency transactions

The following table summarizes the facts of five independent cases (labeled a through e) of
American companies engaging in credit transactions with foreign corporations while the
foreign exchange rate is fluctuating:
Instructions:
Notice that for each case, a blank space has been left in one of the four columns. You are to
fill this blank space after evaluating the information about the case provided in the other three
columns. The content of each column and the word or words that you should enter in the
blank spaces are described below:
Column 1 indicates the type of credit transaction in which the American company engaged
with the foreign corporations. The answer entered in this column should be either "Sales" or
"Purchases."
Column 2 indicates the currency in which the invoice price is stated. The answer may be
either "U.S. dollars" or "Foreign currency."
Column 3 indicates the direction in which the foreign currency exchange rate has moved
between the date of the credit transaction and the date of settlement. The answer in this
column may be either "Rising" or "Falling."
Column 4 indicates the effect of the exchange rate fluctuation upon the income of the
American company. The answers entered in this column are to be selected from the following:
"Gain," "Loss," or "No effect."
15-17
71. Exchange rates and hedging

On October 1, 2009 Glenn Company accepted a shipment of beer from Germany. The
purchase contract specifies payment of 3,000,000 Euros is to be made on December 1, 2009.
The exchange rate on October 1, 2009 was: $1 = 1.4 Euros.
Instructions:
(a) If the exchange rate on December 1, 2009 is: $1 = 1.18 Euros, what amount of gain or loss
due to the exchange rate fluctuation will be recognized on the purchase?
(b) On October 1, Glenn's analysts were forecasting the exchange rate to be: $1 = 1.20 Euros
on December 1, 2009. Glenn can enter into a hedging contract on October 1, 2009 whereby
the bank will accept $2,480,000 in exchange for 3,000,000 Euros on December 1. The bank
will charge a $2,000 fee to enter into the agreement. Should Glenn enter into the hedge
agreement?
(c) If Glenn enters into the hedging contract, what will be the exchange gain/loss recorded on
December 1, 2009?
72. Prepare journal entries for the following transactions for Inter-Global Co.
October 10: Purchased merchandise on account from Le Monde, a French company, for
80,000 euros. The exchange rate was $.82.
November 2: Paid Le Monde for the merchandise purchased on October 1. The exchange rate
at this date was $.83.
November 15: Sold merchandise to Nippon, a Japanese company for 300,000 yen on account.
The rate of exchange was .0091.
November 20: The Japanese company paid the full amount. The exchange rate was .0090.
December 5: Sold merchandise to Ponti, an Italian company for $24,000. The exchange rate is
.81. The Italian company agrees to pay in U.S. dollars.
December 18: Collected the full amount from the Italian company.
15-18
73. Listed below are several terms and statements with missing expressions. You are to fill in
the blanks with the appropriate term
(1) To convert a foreign currency to an equivalent dollar amount _________ the foreign
currency by the foreign exchange rate.
(2) To convert a dollar amount into an equivalent amount of foreign currency ___________
the dollar amount by the exchange rate.
(3) The __________ prohibits companies engaged in global activities from bribing officials of
foreign countries.
(4) Goods imported into __________ are duty free.
(5) ___________ minimizes or eliminates the risk of loss associated with foreign currency
fluctuations.
(6) In a __________ ownership of land and the means of production are privately held.
(7) In a __________ the government allocates resources and determines output among various
segments of the economy.
(8) The process of restating an amount of foreign currency in terms of the equivalent number
of dollars is called ________ the foreign currency.
(9) A currency is described as ___________ when its exchange rate is rising relative to other
currencies.
(10) A currency is described as __________ when its exchange rate is falling in relation to
other currencies.
15-19
Chapter 15 Global Business and Accounting Answer Key
True / False Questions
1. An international joint venture involves the creation of a new company that is owned by two
or more firms from different countries.
TRUE
AACSB: Global
AICPA BB: Legal
AICPA FN: Measurement
Learning Objective: 1
2. In a planned economy, ownership of land and the means of production are private, and
markets dictate the allocation of resources and the output among segments of the economy.
FALSE
AACSB: Reflective Thinking

AICPA BB: Global
3. Differences in accounting practices among countries reflect the different sources of capital
in those countries.
TRUE

AICPA BB: Global
15-20
4. A wholly owned international subsidiary exists when a company owns 100% of the equity
in a U.S. foreign subsidiary.
TRUE

AICPA BB: Legal
5. Although cultural differences are significant in business dealings, they pose no difficulties
to the design and implementation of an accounting system.
FALSE

AICPA BB: Global
6. In a planned economy, the government uses central planning to allocate resources and
determines output among various segments of the economy.
TRUE

AICPA BB: Legal
7. The standards issued by the International Accounting Standards Board must be followed by
all multinational companies.
FALSE

AICPA BB: Legal
15-21
8. An exchange rate represents the price of one currency stated in terms of another.
TRUE

AICPA BB: Global
9. Having a liability that is fixed in terms of a foreign currency results in a loss for the debtor
if the exchange rate falls between the transaction date and the payment date.
FALSE

AICPA BB: Global
10. The statement that "the yen has fallen against the dollar" means that the yen has become
less valuable relative to the dollar.
TRUE

AICPA BB: Global
11. U.S. cultural traits include high uncertainty avoidance and a long-term orientation.
FALSE

AICPA BB: Global
15-22
12. Whenever an American corporation sells merchandise to foreign companies, the

transaction must be stipulated in American dollars.
FALSE

AICPA BB: Global
13. An American corporation making purchases from foreign companies will experience gains
and losses from exchange rate fluctuations if (a) the purchase prices are stated in terms of the
foreign currency and (b) the purchases are made on account.
TRUE

AICPA BB: Global
14. Hedging refers to the strategy of taking offsetting positions so that gains in one currency
offset losses in another currency.
FALSE

AICPA BB: Critical Thinking
15. A company has a "hedged position" when it has similar amounts of accounts receivable
and accounts payable in that same foreign currency.
TRUE

AICPA FN: Risk Analysis
15-23
16. Payments made by U.S. companies to motivate foreign officials to undertake actions more
rapidly than they might otherwise are prohibited by the Foreign Corrupt Practices Act.
FALSE

AICPA BB: Legal
17. One of the most important requirements of the Foreign Corrupt Practices Act is the
maintenance of an adequate system of international reporting.
FALSE

AICPA BB: Legal
AICPA FN: Reporting
18. The Foreign Corrupt Practices Act distinguishes between influence peddling and
facilitating payments. The former is prohibited while the latter are allowed.
TRUE

AICPA BB: Legal
AICPA FN: Reporting
19. The Foreign Corrupt Practices Act allows Americans doing business in countries where
bribes are legal to also make bribes.
FALSE

AICPA BB: Legal
AICPA FN: Reporting
15-24
20. The accounting profession has been slow to develop in Asian countries because of strict
governmental control of accounting regulations.
TRUE

AICPA BB: Legal
AICPA FN: Reporting
21. An international joint venture is a company owned by two or more companies from
different countries.
TRUE

AICPA BB: Legal
22. Accounting as a profession did not exist in England prior to 1988.

FALSE

AICPA FN: Reporting
23. An increase in the exchange rate between a transaction date and the date of payment will
cause the debtor to incur a loss.
TRUE
AACSB: Analytic
AICPA BB: Global
15-25
24. As foreign exchange rates fall, United States based importers will lose and exporters will
gain.
FALSE
AACSB: Analytic
AICPA BB: Global
25. To convert a foreign currency into dollars, divide the foreign currency by the foreign
exchange rate.
FALSE

AICPA BB: Global
26. To convert a dollar amount into a foreign currency divide the dollar amount by the
exchange rate.
TRUE

AICPA BB: Global
27. A dollar that is stronger than the British pound would make travel to the United States
more attractive to British citizens.
FALSE
AACSB: Analytic
AICPA BB: Global
15-26
28. Future contracts are used by companies to hedge against losses in foreign currencies.
TRUE

AICPA BB: Global
29. "Convergence" means abandoning a country's financial reporting standards and replacing
them with the International financial Reporting Standard
FALSE

AICPA BB: Global
30. China, Japan & Australia have amended their current standards to converge with
International Financial Reporting Standards but the United States chooses to adopt the
International Financial Reporting Standards.
FALSE

AICPA BB: Global
31. "Adoption" means replacing current financial reporting standards with International
Financial Reporting Standards.
TRUE

AICPA BB: Global
Multiple Choice Questions
15-27
32. Accounting practices are affected by all of the following except:

A. Political systems
B. Economic systems
C. Technology and infrastructure
D. All of the above affect accounting systems

33. Establishing international accounting standards is the responsibility of

A. Securities and Exchange Commission
B. International Accounting Standards Board
C. Financial Accounting Standards Board
D. Accounting Association of America

34. Gains and losses from fluctuations in exchange rates should be shown on the
A. Balance sheet
B. Income statement
C. Statement of changes to owners' equity
D. Cash flow statement

15-28
35. On November 1 a French company purchased machinery from an American company for
800,000 euros when the exchange rate was $.83. When preparing financial statements on
December 31 when the rate for the euros was $.88, what amount of gain or loss should the
American company report?
A. $40,000 gain
B. $40,000 loss
C. $19,000 gain
D. No gain or loss would be reported
800,000  ($.88 - $.83) = $40,000 gain
AACSB: Analytic
AICPA BB: Global
36. Of the following globalization strategies, which would be least demanding in terms of the
quantity and variety of accounting information required?
A. Exporting.
B. International licensing.
C. Joint ventures.
D. Establishing a wholly owned foreign subsidiary.

AICPA BB: Global
37. Which of the following does not affect the cost associated with producing and selling
goods and services in global markets?
A. Tariffs.
B. Duties.
C. Special trade zones.
D. All three affect the cost.

AICPA BB: Global
15-29
38. In Japan, financial reporting requirements are based primarily on the need to provide
information to:
A. Investors.
B. Government agencies.
C. Banks.
D. U.S. subsidiaries of Japanese companies.

AICPA BB: Global
39. Which of the following organizations is responsible for developing uniform worldwide
accounting standards?
A. The Securities Exchange Commission.
B. The International Accounting Standards Board.
C. The Financial Accounting Standards Board.
D. The International Organization of Accounting Boards.

AICPA BB: Global
40. Low individualism and high long-term orientation is indicative of which culture?
A. United States.
B. Great Britain.
C. Japan.
D. Germany.

AICPA BB: Global
AICPA FN: Research
15-30
41. The price of one currency stated in terms of another currency is the:
A. Current ratio.
B. Exchange rate.
C. Facilitating payment.
D. International clearing price.

AICPA BB: Global
42. When the government uses central planning to allocate resources and to determine output
among various segments of the economy, this is known as:
A. A dictatorship.
B. A democracy.
C. A planned economy.
D. A market economy.

AICPA BB: Global
43. If the exchange rate for a foreign currency (stated in dollars) has risen, a dollar will
purchase:
A. An increased amount of that foreign currency.
B. An unchanged amount of that foreign currency.
C. A smaller amount of that foreign currency.
D. An undetermined amount of that foreign currency.

AICPA BB: Global
15-31
44. Consider the following statement: "A strong dollar rose sharply against the British pound,
but fell slightly against the Japanese yen." This statement indicates that:
A. The British pound is a stronger currency than the Japanese yen.
B. The exchange rate for the yen, stated in dollars, is rising.
C. The exchange rate for the pound, stated in dollars, is rising.
D. The exchange rate for the yen, stated in pounds, is falling.

AICPA BB: Global
45. Assume the exchange rate for the Canadian dollar is rising relative to the U.S. dollar. An
American company will incur losses from this rising exchange rate if it is making:
A. Credit sales to Canadian companies at prices stated in Canadian dollars.
B. Credit purchases from Canadian companies at prices stated in U.S. dollars.
C. Credit sales to Canadian companies at prices stated in U.S. dollars.
D. Credit purchases from Canadian companies at prices stated in Canadian dollars.

AICPA BB: Global
46. Assume the exchange rate for the Mexican Peso is falling relative to the U.S. dollar. An
American company will incur losses from this falling exchange rate if the company is
making:
A. Credit sales to Mexican companies at prices stated in U.S. dollars.
B. Credit purchases from Mexican companies at prices stated in U.S. dollars.
C. Credit sales to Mexican companies at prices stated in Mexican Pesos.
D. Credit purchases from Mexican companies at prices stated in Mexican Pesos.

AICPA BB: Global
15-32
47. Which of the following is true about foreign trade zones?

A. They are illegal in the United States.
B. Goods imported into these designated U.S. areas are duty free until they leave the zone.
C. They have a special excise tax.
D. They are areas outside the United States that offer special tax treatments.

AICPA BB: Global
48. Blue Waters is an American company that does business with several Japanese
corporations. In recent months, Blue Waters has been reporting losses from increases in the
exchange rate of the Japanese yen. The majority of Blue Waters transactions with the Japanese
companies probably consist of:
A. Credit sales at prices stated in U.S. dollars.
B. Credit sales at prices stated in Japanese yen.
C. Credit purchases at prices stated in U.S. dollars.
D. Credit purchases at prices stated in Japanese yen.
AACSB: Analytic
AICPA BB: Global
49. A corporation that uses a strategy of hedging all contracts specifying a foreign currency
(i.e. foreign accounts receivable and foreign accounts payable):
A. Will always be better off than if the contracts were not hedged.
B. Recognizes a net loss if the foreign exchange rate increases.
C. Avoids net losses from fluctuations in foreign exchange rates.
D. Recognizes a net gain if the foreign exchange rate increases.
AACSB: Analytic
AICPA BB: Global
15-33
50. Samson Corporation buys a foreign currency future contract as a hedging strategy to
protect against possible losses from fluctuations in a particular foreign exchange. This
strategy suggests that Samson Corporation has:
A. Foreign accounts payable and expects the exchange rate to fall.
B. Foreign accounts receivable and expects the exchange rate to rise.
C. Foreign accounts payable and expects the exchange rate to rise.
D. Foreign accounts receivable and expects the exchange rate to fall.
AACSB: Analytic
AICPA BB: Global
51. Gains and losses from fluctuations in exchange rates on transactions carried out in a
foreign currency are reported in:
A. The balance sheet, as an adjustment to stockholders' equity.
B. The income statement.
C. The footnotes to the financial statements.
D. The statement of retained earnings.

52. A contract giving the right to receive a specified quantity of foreign currency at a future
date is known as:
A. Hedging.
B. Exchange rates.
C. Macquiladora.
D. Future contracts.

15-34
53. Under the Foreign Corrupt Practices Act, American business firms are required to:
A. Refuse to transact business in countries that sanction official corruption.
B. Report all bribery attempts to the International Monetary Fund and World Bank.
C. Maintain an adequate system of internal control limiting access to company assets to
authorized personnel.
D. All of the above are mandated by the Foreign Corrupt Practices Act.

AICPA BB: Legal
AICPA FN: Reporting
In a recent financial journal, the exchange rate between the dollar and the British pound was
quoted in two ways:
54. Refer to the above data. The number of pounds equal to $50,000 on this date is:
A. £31,250.
B. £80,000.
$50,000 /1.60 = $31,250 or $50,000  .625 = $31,250
AACSB: Analytic
15-35
55. Refer to the above data. The number of dollars equivalent to £50,000 on this date is:
A. $31,250.
B. $80,000.
50,000  $1.60 = $80,000 or 50,000 /$.625 = $80,000
AACSB: Analytic
In a recent financial journal, the exchange rate between the dollar and the Japanese yen (¥)
was quoted two ways:
56. Refer to the above data. The number of Japanese yen equivalent to $40,000 on this date is:
(rounded to whole ¥)
A. ¥3,056,000.
B. ¥5,235,602
$40,000  130.89 = $5,235,602 or $40,000 / .00764 = $5,235,602
AACSB: Analytic
15-36
57. Refer to the above data. The number of dollars equivalent to ¥5,250,000 on this date is:
A. $40,110.00.
B. $687,172.50
5,250,000/130.89 = $40,110 or 5,250,000  .00764 = $40,110
AACSB: Analytic
58. Walblue imports a desk from a French manufacturer for sale in its chain of U.S. stores.
The cost of a desk to Walblue is 3,700 Euros. What is the dollar cost of one of these desks if
the exchange rate is currently 1.117 Euros per U.S. dollar? (round to nearest cent)
A. $1,117.00
B. $4,132,90
C. $3,312.44
D. Some other amount.
3,700/1.117 = $3,312.44
AACSB: Analytic
15-37
59. At the current exchange rate of $1.40 per British pound, a one-day pass to Worldwide
Theme Park of Florida sells for 45 pounds at travel agencies throughout Great Britain. If the
exchange rate increases to $1.70 per pound, what will happen to the price of a one-day pass
sold in Great Britain?
A. The price will be unchanged.
B. The price will fall to 37 pounds.
C. The price will increase to 54 pounds.
D. The price will fall by 12 pounds.
45 pounds  $1.40 = $63
AACSB: Analytic
60. Rochester, Inc. purchased cameras from a Japanese company at a price of 4 million yen.
On the purchase date, the exchange rate was $0.0100 per Japanese yen, but when Rochester,
Inc., paid the liability, the exchange rate was $0.0103 per yen. When this foreign account
payable was paid, Rochester, Inc., recorded a:
B. Loss of $1,200.
D. Gain of $1,200.
(4,000,000  $ .01) - (4,000,000  $ .0103) = -$1,200
AACSB: Analytic
15-38
61. Hayden, Inc. purchased knobs from a Greek company for 185,000 Euros. On the purchase
date the exchange rate was $.80 per Euro, but when Hayden paid the liability, the exchange
rate was $.70 per Euro. When this foreign account payable was paid, Hayden, Inc., recorded
a:
B. Loss of $18,500.
D. Gain of $18,500.
(185,000  $.8) - (185,000  $ .7) = $18,500 Gain
AACSB: Analytic
62. Tuliptime, Inc. sold American fashions to a Japanese company at a price of 4 million yen.
On the sale date, the exchange rate was $.0100 per Japanese yen, but when Tuliptime received
payment from its customer, the exchange rate was $.0103 per Japanese yen. When the foreign
receivable was collected, Tuliptime:
B. Debited Cash for $40,000.
(4,000,000  $.01) - (4,000,000  $.0103) = $1,200 gain
AACSB: Analytic
15-39
63. Barter Corp. sold American telecommunications equipment to a British company for
650,000 pounds. On the sale date, the exchange rate was $1.65 per British pound, but when
Barter received payment from its customer, the exchange rate was $1.60 per pound. When the
foreign receivable was collected, Barter Enterprises:
B. Debited Cash for $1,040,000.
(650,000  $1.60) - (650,000  $1.65) = $32,500 loss
AACSB: Analytic
64. Flynn Corporation purchased bicycles from a British manufacturer at a price of 45,000
British pounds on November 15, 2009, with payment due in 60 days. Using the following
exchange rates, what gain or loss from currency fluctuations should be recognized in 2009
and 2010?
A. A $2,250 loss in 2009 and a $900 gain in 2010.

B. No gain or loss in 2009 and a $1,350 loss in 2010.
C. A $2,250 gain in 2009 and a $900 loss in 2010.
D. No gain or loss in 2009 and a $1,350 gain in 2010.
(45,000  $1.75) - (45,000  $1.70) = $2,250 loss in 2009

(45,000  $1.75) - (45,000  $1.73) = $900 gain in 2010
AACSB: Analytic
15-40
65. Exact Instruments sold equipment to a British research group at a price of 70,000 British
pounds on December 1, 2009, with payment due in 90 days. Using the following exchange
rates, what gain or loss from currency fluctuations should recognized in 2009 and 2010?
A. A $2,800 loss in 2009 and a$3,500 gain in 2010.

B. No gain or loss in 2009 and a $700 loss in 2010.
C. A $2,800 gain in 2009 and a $3,500 loss in 2010.
D. No gain or loss in 2009 and a $700 gain in 2010.
(70,000  $1.78) - (70,000  $1.82) = $2,800 gain

(70,000  $1.77) - (70,000  $1.82) = $3,500 loss
AACSB: Analytic
66. Trente Switch and Signal sold equipment to a Canadian transportation company at a price
of 300,000 Canadian dollars with payment due in 60 days. On the date of sale the exchange
rate was 1.50 Canadian dollars per U.S. dollar. Trente decided to hedge the risk of currency
fluctuations by purchasing 300,000 Canadian dollars with payment due in 60 days. If the
exchange rate in 60 days is 1.25 Canadian dollars per U.S. dollar, Trente Switch and Signal
will:
A. Recognize a net gain of $40,000 on the two transactions.
B. Recognize a $40,000 gain when it collects the receivable and incur a $40,000 loss when it
pays the liability.
C. Incur a $40,000 loss when it collects the receivable and recognize a $40,000 gain when it
pays the liability.
D. Incur a net loss of $40,000 on the two transactions.
(300,000/$1.50) - (300,000/$1.25) = $40,000 loss when paying liability and $40,000 gain
when collecting receivables
AACSB: Analytic
15-41
Essay Questions
67. Accounting terminology

Listed below are nine technical accounting terms introduced in this chapter:
Each of the following statements may (or may not) describe one of these technical terms. In
the space provided below each statement, indicate the accounting term described, or answer
"None" if the statement does not correctly describe any of the terms.
(a) The strategy of creating offsetting positions so that losses from currency fluctuations will
be offset by gains resulting from the same fluctuations.
(b) The price of foreign currency, stated in terms of the domestic currency.
(c) An item likely to appear in the income statements of American-based importers when
foreign exchange rates are rising.
(d) The organization responsible for developing uniform worldwide accounting standards.
(e) Payments made to foreign officials to expedite paperwork.
(f ) The process of restating an amount of foreign currency in terms of the equivalent number
of U.S. dollars.
(g ) An item likely to appear in the income statements of American-based exporters when
foreign exchange rates are falling.
(a ) Hedging (b.) Exchange rate (c.) Loss on fluctuations in foreign exchange rates (d.)
International Accounting Standards Board (e.) Facilitating payments (f.) Translating a
currency (g.) Loss on fluctuations in foreign exchange rates

AICPA BB: Global
Learning Objective: 1 - 8
15-42
68. Importing transactions-journal entries

Striking Furs imports furs from Canada. In the space provided below, prepare journal entries
to record the following events.
Dec. 11, 2009: Purchased furs from Capable Trappers, Ltd., a Canadian corporation, at a price
of 25,000 Canadian dollars, due in 60 days. The current exchange rate is .85 U.S. dollars per
Canadian dollar. (Striking uses the perpetual inventory method; debit the Inventory account.)
Dec. 31, 2009: Striking made a year-end adjusting entry relating to the account payable to
Capable Trappers. The exchange rate at year-end is .89 U.S. dollars per Canadian dollar.
Feb. 9, 2010: Issued a check for $21,750 (U.S. dollars) to National Bank in full settlement of
the liability to Capable Trappers, Ltd. The exchange rate at this date is .87 U.S. dollars per
Canadian dollar.
15-43
AACSB: Analytic
15-44
69. Exporting transactions-journal entries

Jung Farms exports wheat to Germany. In the space provided below, prepare journal entries to
record the following events.
Nov. 15, 2010: Sold wheat to a German restaurant chain at a price of 2 million Euros, due in
90 days. The current exchange rate is .8 U.S. dollars per Euro. (Jung uses the periodic
inventory method.)
Dec. 3, 2010: Jung made a year-end adjusting entry relating to the account receivable from the
German restaurant chain. The exchange rate at year-end is .85 U.S. dollars per Euro.
Feb. 15, 2011: Received a check for $1,640,000 from the InterContinental Bank in full
settlement of the receivable from the German restaurant chain. The exchange rate at this date
is .82 U.S. dollars per Euro.
15-45
AACSB: Analytic
15-46
70. Foreign currency transactions

American companies engaging in credit transactions with foreign corporations while the
foreign exchange rate is fluctuating:
Instructions:
Notice that for each case, a blank space has been left in one of the four columns. You are to
fill this blank space after evaluating the information about the case provided in the other three
columns. The content of each column and the word or words that you should enter in the
blank spaces are described below:
Column 1 indicates the type of credit transaction in which the American company engaged
with the foreign corporations. The answer entered in this column should be either "Sales" or
"Purchases."
Column 2 indicates the currency in which the invoice price is stated. The answer may be
either "U.S. dollars" or "Foreign currency."
Column 3 indicates the direction in which the foreign currency exchange rate has moved
between the date of the credit transaction and the date of settlement. The answer in this
column may be either "Rising" or "Falling."
Column 4 indicates the effect of the exchange rate fluctuation upon the income of the
American company. The answers entered in this column are to be selected from the following:
"Gain," "Loss," or "No effect."
15-47
AACSB: Analytic
71. Exchange rates and hedging

On October 1, 2009 Glenn Company accepted a shipment of beer from Germany. The
purchase contract specifies payment of 3,000,000 Euros is to be made on December 1, 2009.
The exchange rate on October 1, 2009 was: $1 = 1.4 Euros.
Instructions:
(a) If the exchange rate on December 1, 2009 is: $1 = 1.18 Euros, what amount of gain or loss
due to the exchange rate fluctuation will be recognized on the purchase?
(b) On October 1, Glenn's analysts were forecasting the exchange rate to be: $1 = 1.20 Euros
on December 1, 2009. Glenn can enter into a hedging contract on October 1, 2009 whereby
the bank will accept $2,480,000 in exchange for 3,000,000 Euros on December 1. The bank
will charge a $2,000 fee to enter into the agreement. Should Glenn enter into the hedge
agreement?
(c) If Glenn enters into the hedging contract, what will be the exchange gain/loss recorded on
December 1, 2009?
15-48
Flynn should enter into the hedging contract since the expected cost of settling the payable is
less with the hedge.
AACSB: Analytic
15-49
72. Prepare journal entries for the following transactions for Inter-Global Co.
October 10: Purchased merchandise on account from Le Monde, a French company, for
80,000 euros. The exchange rate was $.82.
November 2: Paid Le Monde for the merchandise purchased on October 1. The exchange rate
at this date was $.83.
November 15: Sold merchandise to Nippon, a Japanese company for 300,000 yen on account.
The rate of exchange was .0091.
November 20: The Japanese company paid the full amount. The exchange rate was .0090.
December 5: Sold merchandise to Ponti, an Italian company for $24,000. The exchange rate is
.81. The Italian company agrees to pay in U.S. dollars.
December 18: Collected the full amount from the Italian company.
AACSB: Analytic
15-50
73. Listed below are several terms and statements with missing expressions. You are to fill in
the blanks with the appropriate term
(1) To convert a foreign currency to an equivalent dollar amount _________ the foreign
currency by the foreign exchange rate.
(2) To convert a dollar amount into an equivalent amount of foreign currency ___________
the dollar amount by the exchange rate.
(3) The __________ prohibits companies engaged in global activities from bribing officials of
foreign countries.
(4) Goods imported into __________ are duty free.
(5) ___________ minimizes or eliminates the risk of loss associated with foreign currency
fluctuations.
(6) In a __________ ownership of land and the means of production are privately held.
(7) In a __________ the government allocates resources and determines output among various
segments of the economy.
(8) The process of restating an amount of foreign currency in terms of the equivalent number
of dollars is called ________ the foreign currency.
(9) A currency is described as ___________ when its exchange rate is rising relative to other
currencies.
(10) A currency is described as __________ when its exchange rate is falling in relation to
other currencies.
(1) Multiply
(2) Divide
(3) Foreign Corrupt Practices Act
(4) Foreign trade zones
(5) Hedging
(6) Market economy
(7) Planned economy
(8) Translating
(9) Strong
(10) Weak
AACSB: Reflective
AICPA BB: Global
Learning Objective: 1 - 8
15-51
CHAPTER 15 NAME #_________
10-MINUTE QUIZ A SECTION____________________________
Indicate the best answer for each question in the space provided.
Use the following data for questions 1 through 3.:
Nancy Brown owns an American company that sells music cassettes to Mexican outlets. On
December 10, 2009, she sold tapes to Music of Mexico for a price of 16,000 pesos, due in 60
days. The foreign currency exchange rates on specific dates are as follows:
Dec. 10, 2009 $.1600 per peso

Dec. 31, 2009 $.1596 per peso
Feb. 8, 2010 $.1599 per peso
1 Refer to the above data. The journal entry to record the sale in Brown’s accounting
records on December 10, 2009, includes:
a A debit to Accounts Receivable for 16,000 pesos.
b A credit to Sales for $2,560.
c A debit to Loss on Fluctuation of Foreign Currency for $260.
d No entry is made until year-end on this type of transaction..
2 Refer to the above data. With regard to this transaction, Brown’s financial statements
at December 31, 2009, include:
a An account receivable of $2,560
b A gain on fluctuation of foreign currency of $6.40
c Sales revenue of $2,553.60
d A loss on fluctuation of foreign currency of $6.40.
3 Refer to the above data. Which of the following is not true regarding the above sales
transaction to Music of Mexico?
a Brown recognizes a loss on fluctuation of foreign currency in the amount of $4.65
in 2009.
b Brown recognizes a gain on fluctuation of foreign currency in the amount of $4.80
in 2010.
c Brown has incurred an overall loss of $1.60 on fluctuation of foreign currency in
the period from December 10, 2009 to February 8, 2010.
d Brown could have avoided any loss due to fluctuations in foreign currency by
setting the sales price of the cassettes in terms of U.S. dollars instead of pesos.
4 Which of the following businesses or individuals would benefit most from a strong
U.S. dollar?
a A small store that sells American-made cameras in St. Louis, Missouri. The store
has no foreign receivables or payables.
b The Cancun, Mexico, outlet for Levi’s jeans(made in the U.S.)
c International Harvester (an American manufacturer of farming machinery that
sells equipment to foreign customers.)
d An American tourist visiting France.
15-52
CHAPTER 15 NAME #
10-MINUTE QUIZ B SECTION____________________________________
Utah Ranchers exports beef to Japan. In the space provided below, prepare journal entries to record
the following events.
2008
Nov. 1 Sold beef steaks to a Japanese restaurant chain at a price of 1 million yen, due in 90
days. The current exchange rate is .0101 U. S. dollars per yen. (Utah uses the periodic
Inventory method.)
Dec. 31 Utah made a year-end adjusting entry relating to the account receivable from the
Japanese restaurant chain. The exchange rate at year-end is .0102 U. S. dollars per yen.
2009
Feb. 1 Received a check for $10,300 from the Universal Bank in full settlement of the
receivable from the Japanese restaurant chain. The exchange rate at this date is .0103
U. S. dollars per yen.
2008 General Journal

Nov. 1
Dec. 31
2009
Feb. 1
15-53
CHAPTER 15 NAME #
10-MINUTE QUIZ C SECTION____________________________________
American companies engaging in credit transactions with foreign corporations while the foreign
exchange rate is fluctuating:
Column
Type of Credit Currency Used in Exchange Rate Effect on
Transaction Contract Direction Income
Case 1 2 3 4
a Sales Foreign currency Rising
b Purchases Rising No effect
c Purchases Foreign currency Loss
d Sales U.S. dollars Falling
e Foreign currency Falling Gain
Instructions
Notice that for each case, a blank space has been left in one of the four columns. You are to fill this
blank space after evaluating the information about the case provided in the other three columns.
The content of each column and the word or words that you should enter in the blank spaces are
described below:
Column 1 indicates the type of credit transaction in which the American company engaged with the
foreign corporations. The answer entered in this column should be either “Sales” or “Purchases.”
Column 2 indicates the currency in which the invoice price is stated. The answer may be either
“U.S. dollars” or “Foreign currency.”
Column 3 indicates the direction in which the foreign currency exchange rate has moved between
the date of the credit transaction and the date of settlement. The answer in this column may be
either “Rising” or “Falling.”
Column 4 indicates the effect of the exchange rate fluctuation upon the income of the American
company. The answers entered in this column are to be selected from the following: “Gain,”
“Loss,” or “No effect.”
15-54
CHAPTER 15 NAME #
10-MINUTE QUIZ D SECTION____________________________________
Listed below are nine global business terms introduced in this chapter:
Foreign exchange risk Future contracts International Accounting

Standards Board
Loss on fluctuation in Hedging Exporting

foreign exchange rates
Planned economy International licensing Foreign Corrupt Practices

Act
Each of the following statements may (or may not) describe one of these terms. In the space
provided below each statement, indicate the accounting term described, or answer “None” if the
statement does not correctly describe any of the terms
a The strategy of creating offsetting positions so that losses from currency fluctuations will be
offset by gains resulting from the same fluctuations.
______________________________
b Selling a good or service to a foreign customer.

______________________________
c Government allocates resources and determines output through central planning.

______________________________
d The organization responsible for developing uniform worldwide accounting standards.

______________________________
e Distinguishes between illegal influence peddling and legal facilitating payments.

______________________________
f A cross-border contractual agreement allowing one company to use trademarks, patents or

technology of another company.
______________________________
g The impact on the value of a company of unexpected fluctuations in the exchange rate.
______________________________
15-55
CHAPTER 15 SELF-TEST QUESTIONS FROM TEXTBOOK
Choose the best answer for each of the following questions and insert the identifying letter in
the space provided.
1 Which of the following statements are true about globalization methods?

a International licensing involves the creation of a new company that is owned by
two or more firms from different countries.
b Exporting involves contracts that allow a foreign company to use a domestic
company’s trademarks, patents, processes, or technology.
c Global sourcing involves the close coordination of research and development,
purchasing, marketing, and manufacturing across national boundaries.
d A wholly owned international subsidiary is created when a foreign government
owns 100% of the equity in a U.S. based firm.
2 Which of the following environmental factors can impact the cost of doing business in
a foreign country.
a The educational level of the workforce.
b Laws regulating the transfer of profits out of a country.
c Tax and tariff regulations.
d Restricted access to communication and transportation networks.
3 A country whose citizens are highly group-oriented and who accept unequal power
distributions between and within organizations would be considered:
a Individualistic and lower power distance.
b Collectivist and high power distance.
c Individualistic and high power distance.
d Collectivist and low power distance.
4 On March 1, Laton Products (a U.S. firm) purchased manufacturing inputs from a

Mexican supplier for 20,000 pesos, payable on June 1. The exchange rate for pesos on
March 1 was $0.17. If the exchange rate increases to $0.19 on June 1, what amount of
gain or loss would be reported by Laton related to the currency exchange?
a $400 gain.
b $200 loss.
c $400 loss.
d $200 gain.
5 On January 1, 2005 a German company purchased merchandise from a U.S. firm for
$50,000, payable on March 1. The exchange rate for euro on January 1 was $0.70. If
the exchange rate increases to $0.72 on March 1, what amount of gain or loss would the
U.S. firm report related to currency fluctuation?
a $1,000 gain.
b $1,000 loss.
c $500 gain
d No gain or loss would be reported.
15-56
SOLUTIONS TO CHAPTER 15 10-MINUTE QUIZZES
QUIZ A
1 B
2 D
3 A
4 D
QUIZ B
2008 General Journal

Nov. 1 Accounts receivable 10,100
Sales 10,100
To record the sale of beef steaks to Japanese restaurant for
1 million yen when the exchange rate is 0.0101 U. S.
dollars per yen.
(1 million yen x 0.0101 = $10,100)
Dec. 31 Accounts receivable 100

Gain on fluctuations in foreign exchange rates 100
To adjust balance of 10,000 dollar account receivable
to amount indicated by year-end exchange rate:
Original account balance $10,100
Adjusted balance (1 mil. yen x 0.0102) $10,200
Required adjustment (gain) $ 100
2009
Feb. 1 Cash 10,300
Gain on fluctuations in foreign exchange rate 100
Accounts receivable 10,200
To record receipt $10,300 in settlement of account receivable,
and to recognize gain from exchange
rate since Dec. 31
Accounts receivable, adjusted balance $10,200
Amount paid, Feb 1 10,300
Gain from increase in exchange rate $ 100
15-57
QUIZ C
Column
Type of Credit Currency Used in Exchange Rate Effect on
Transaction Contract Direction Income
Case 1 2 3 4
A Sales Foreign currency Rising Gain
B Purchases U.S. dollars Rising No effect
C Purchases Foreign currency Rising Loss
D Sales U.S. dollars Falling No effect
E Purchases Foreign currency Falling Gain
QUIZ D
a Hedging
b Exporting
c Planned economy
d International Accounting Standards Board
e Foreign Corrupt Practices Act
f International licensing
g Foreign exchange risk
SOLUTIONS TO CHAPTER 15 SELF-TEST QUESTIONS FROM TEXTBOOK
1 C 2 A, B, C, D 3 B 4 C (0.17 – .19) x 20,000 5 D (The transaction was

denominated in dollars)
15-58

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Chapter 15 Global Business and Accounting

True / False Questions

12. Whenever an American corporation sells merchandise to foreign companies, the

22. Accounting as a profession did not exist in England prior to 1988.

Multiple Choice Questions

32. Accounting practices are affected by all of the following except:

33. Establishing international accounting standards is the responsibility of

47. Which of the following is true about foreign trade zones?

A. A $2,250 loss in 2009 and a $900 gain in 2010.

A. A $2,800 loss in 2009 and a$3,500 gain in 2010.

67. Accounting terminology

68. Importing transactions-journal entries

69. Exporting transactions-journal entries

70. Foreign currency transactions

71. Exchange rates and hedging

Chapter 15 Global Business and Accounting Answer Key

True / False Questions

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

12. Whenever an American corporation sells merchandise to foreign companies, the

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

22. Accounting as a profession did not exist in England prior to 1988.

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

Multiple Choice Questions

32. Accounting practices are affected by all of the following except:

AACSB: Reflective Thinking

33. Establishing international accounting standards is the responsibility of

AACSB: Reflective Thinking

AACSB: Reflective Thinking

800,000  ($.88 - $.83) = $40,000 gain

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking

AACSB: Reflective Thinking