Solution Manual For International Accounting, 4th Edition

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Chapter 01-Introduction to International Accounting1-1CHAPTER 1INTRODUCTION TOINTERNATIONAL ACCOUNTINGChapter OutlineI.International accounting is an extremely broad topic.A.Ataminimumitfocusesontheaccountingissuesuniquetomultinationalcorporations, especially with respect to foreign operations.B.At the other extreme it encompasses the study of the various functional areas ofaccounting in all countries of the world, as well as the activities of a number ofsupranational organizations.C.Thisbookprovidesanoverviewofthebroadlydefinedareaofinternationalaccounting, with a focus on the accounting issues encountered by multinationalcompanies engaged in international trade andinvested inforeign operations.II.There are several accounting issues encountered by companies involved in internationaltrade.A.One issue is the accounting for foreign currency-denominated export sales andimport purchases.An important issue is how to account for changes in the value oftheforeigncurrency-denominatedaccountreceivable(payable)thatoccurasexchange rates fluctuate.B.A related issue is the accounting for derivative financial instruments, such as forwardcontracts and foreign currency options,used to hedge the foreign exchange riskassociated with foreign currency transactions.III.Thereisan even greater number of accounting issues encountered by companiesthathave made a direct investment in aforeign operation.These issues primarily result fromthe fact that GAAP, tax laws, and other regulations differ across countries.A.Figuring out how to make sense ofthe financial statementsofaforeign acquisitiontargetpreparedin accordance with an unfamiliar GAAP when makingaforeign directinvestment decision.B.Determining the correct amounts to include in consolidated financial statements fortheassets,liabilities,revenues,andexpensesofforeignoperations.Theconsolidation of a foreign subsidiary involves a two-step process:(1) restateforeignGAAP financial statements intoparent company GAAP and (2) translateforeigncurrencyamountsinto parentcompanycurrency.Determiningtheappropriatetranslation method anddeciding how to report the resulting translation adjustmentare importantquestions.C.Complying with host country income tax laws, as well as home country taxlawsrelated toincome earned in a foreign country(foreign source income).Doubletaxation of income is a potential problem, and foreign tax credits are the mostimportant relief from this problem.D.Establishingpricesforintercompanytransactionsthatcrossnationalborders(international transfer prices)toachieve corporate objectives and at the same timecomply with governmental regulations.

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