ACCTG 5140 Exam
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24 Terms
If Direct Rate goes up, did USD get stronger or weaker?
weaker, costs more dollars to get 1 euro
If Direct Rate goes, down did USD get stronger or weaker?
Stronger, takes less dollars to get 1 euro
If USD strengthens, DR goes down. How does this affect AP and AR exchange gain/loss?
AP exchange gain and AR exchange loss
If USD weakens, DR goes up. How does this affect AP and AR exchange gain/loss
AP exchange loss and AR exchange gain
Spot Rate
exchange rate at this exact moment
Current Rate
exchange rate at end of accounting period
What rate is used for Current Assets and Current Liabilities under the Translation Method?
Current Rate
What rate is used for Equity under the Translation Method?
Historical Rate
What rate is used for Revenues and Expenses under the Translation Method?
Average Rate
If local and functional currency are the same, which method to use?
Translation Method
If local and function are NOT the same, which method to use
Remeasurement Method
Sales Variance equation
(Budgeted Sales - Actual Sales) * Budgeted rate
Rate Variance equation
(EY Rate - Budgeted Rate) * Actual Sales
Tax Holiday
low to zero taxes for temporary amount of time to encourage FDI
Tax Haven
permanently low to zero tax rates
Worldwide Tax approach
Tax all income of a resident regardless of where it’s earned, can lead to double taxation
Territorial Tax Approach
Tax only on income earned in that country, helps prevent double taxation
How to avoid double taxation?
Foreign tax credits/deductions and tax treaties
How is a branch taxed?
Branch Income is included on parent company’s tax return, parent is allowed to deduct the taxes paid in branch country from US taxes
How is subsidiary taxed?
Subsidiary income is not included on parent company’s tax return,
What’s transfer pricing?
When one division in a company sells parts to another division in the company
Why is transfer pricing an issue?
Companies can overreport there earnings by selling it at a higher price
Thin Capitalization
Using as much debt as possible to finance its foreign operations, debt to equity maxxing