Chapter 1, Exercises 34; Chapter 1, Case 1-1 (Besserbrau AG); Chapter 2,

Exercises 78

Chapter 1

Exercises3

a. The reason for Acme Brush of Brazils pretax income became a U.S dollar pretax loss
is that sales and expenses are translated at different exchange rates. In this case, sales are
translated at an exchange rate of USD 0.3/BRL. On the other hand, expenses are
translated at an exchange rate of USD 0.347368 / BRL.

b. In this case, Acme Brush should not be paid a bonus. Because, as a subsidiary, Acme
Brush should generate profit for its parent company. However, Acme Brush fails to do so
and it generates a US dollar pretax loss for its parent company. As a result, the company
should be paid bonus.

Exercises 4

a. As of December 31, 2015, there are 515 NYSE and NYSE MKT-listed non-U.S.
Issuers from 46 countries.
b. Five countries with the most companies listed on the NYSE are: Canada (140), China
(59), Brazil (25), U.K (24) and Bermuda (20)
c. U.S has the largest capital market and the most functional financial system in the
world. AS a result, by listing on the U.S. stock market, foreign companies will be able
to access much larger capital market.

Cases 1-1

Sales to foreign customer: Besserbrau export its product to China. As a result,

Besserbrau needs to deal with different currency transactions.
Hedges of Foreign Exchange Risk: Besserbrau exposed to the risk that foreign
currency will decrease in Euro value over the life of the receivable.
Foreign Direct investment: Besserbrau wants to establish new facilities in China.
Financial Reporting for Foreign Operations: Different countries will have different
requirement for the financial reporting.
International income taxation: There are import and export taxes associated with the
trade.
 Performance evaluation of foreign operation: If the ROI of each country measure by
using Euro, BB Pijio ROI percentage will be smaller than Besserbrau ROI because
the fluctuate Yuan on Euro.

Chapter 2

Exercises 7

a. The greatest problem associated with accounting diversity is there is lack of

comparability of financial statement across countries. Since different accounting
systems have some fundamental differences, thus, it is not worth to compare different
financial statements.
b. International investors will be the group who most affected by worldwide accounting
diversity.
c. MNCs could easily deal with the problems associated with accounting diversity.
MNCs have the internal information needed to reconcile their foreign subsidiaries
financial statements.

Exercises 8

I believe Legal system represents the greatest impediment to the international

convergence of accounting. In each country, legal system always has a strong influence
on the financial reporting. In addition, government in different countries are not likely to
change their legal system and laws that are associated with financial reporting.