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20 Cards in this Set

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Acccounting Reserves
Accounts created in a firm's financial reports to record foreseeable future expenses that might affect its operations
Two -transaction approach
an approach used by U.S. firms to account on their income statements for transaction denominated in foreign currencies
Translation
The process of Transforming a subsidiary's reported operations demominated in a foreign currency into the parent's home currency
Consolidated financial statements
reports the comined operations of a parent and its subsidiaries in single set of accounting statements denominated in a single currency
Cost Method
Technique used to consolidate accounting records of subsidairies in which the parent company's ownership stake is less than 10 percent
Equity Method
Technique used to consolidate accounting records of subsidiaries in which parent's ownership stake is between 10 and 50 percent
Consolidation Method
Techniques used to consolidate accounting records of subsidiaries in which the parent company's onwership stake is more than 50 percent
Functional Currency
currency of the principal econmic environment in which a subsidiary operates
Current Rate Method
approach used to consolidate the financial statements of a foreign subsidiary when the subsidiary's functional currency is the subsidiary's home currency
Temporal Method
approach used to consolidate the financial statements of a foreign subsidiary whose functional currency is the U.S. dollar
Cumulative Translation Adjustment
account created to balance any difference between a subsidiary's assets and its liabilities and stockholder's equity when the current rate method is used to value its balance sheet
Transfer Pricing
Prices that one branch or subsidiary of a parent firm charges for goods, services, or property sold to a second branch or subsidiary of same parent firm
Arm's Length Test
Test imposed by the Internal Revenue Service to determine the appropriateness of transfer prices; reflects the price that one independent company would charge a second for a good or service
Tax Havens
Countries that charge low, often zero, taxes on corporate incomes and that offer an attractive business climate
Foreign Sales Corporation
subsidiary of a U.S. MNC that enjoys substantial income tax savings from profits earned from exporting activities
Deferral Rule
rule permitting U.S. companies to defer paying U.S. income taxes on profits earned by their foreign
Controlled Foreign Corporation
Foriegn corporation in which certain U.S. shareholders (each of which must own at least 10 percent of the foreign corporation's stock) cumulatively own at least 50 percent of the foreign corporation's stock
Active Income
Income generated by active business operations such as production, marketing, and distribution
Subpart F income (passive income)
Income earned from financial transactions, such as dividends, interest, and royalties; also called passive income
Advance Pricing Agreement
An agreement between an international business and the U.S. Internal Revenue Service establishing in advance the tranfer prices the company will charge for intracorporate transactions