Question: A U.S. company’s foreign subsidiary

> The partnership agreement of Jones, King, and Lane provides for the annual allocation of the business’s profit or loss in the following sequence: ∙ Jones, the managing partner, receives a bonus equal to 20 percent of t

> The Prince-Robbins partnership has the following capital account balances on January 1, 2021: Prince is allocated 80 percent of all profits and losses with the remaining 20 percent assigned to Robbins after interest of 10 percent is given to each partner

> A partnership begins its first year with the following capital balances: The articles of partnership stipulate that profits and losses be assigned in the following manner: ∙ Each partner is allocated interest equal to 5 percent of the b

> On January 1, 2020, James Company purchased 100 percent of the outstanding voting stock of Nolan, Inc., for $1,000,000 in cash and other consideration. At the purchase date, Nolan had common stock of $500,000 and retained earnings of $185,000. James attr

> Use the trial balance presented for Lynch, Inc., in problem (51). Assume that the company will be liquidated and the following transactions will occur: ∙ Accounts receivable of $18,000 are collected with remainder written off. ∙ All of the company’s inve

> Lynch, Inc., is a hardware store operating in Boulder, Colorado. Management recently made some poor inventory acquisitions that have loaded the store with unsalable merchandise. Because of the drop in revenues, the company is now insolvent. The entire in

> Becket Corporation’s accountant has prepared the following balance sheet as of November 10, 2020, the date on which the company is to release a plan for reorganizing operations under Chapter 11 of the Bankruptcy Reform Act: The company

> The following balance sheet has been produced for Litz Corporation as of August 8, 2020, the date on which the company is to begin selling assets as part of a corporate liquidation: The following events occur during the liquidation process: âˆ

> The following balance sheet has been prepared by the accountant for Limestone Company as of June 3, 2020, the date on which the company is to file a voluntary petition of bankruptcy: Additional Information ∙ If the company is liquidated

> Smith Corporation has gone through bankruptcy and is ready to emerge as a reorganized entity on December 31, 2020. On this date, the company has the following assets (fair value is based on dis- counting the anticipated future cash flows): The company ha

> Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It will apply fresh start accounting as of December 31, 2020. The company currently has 30,000 shares of common stock outstanding with a $240,000 par value. As part of the reorga

> Shi Company is going through a Chapter 7 bankruptcy. All assets have been liquidated, and the company retains only $26,200 in free cash. The following debts, totaling $43,050, remain: Indicate how much money will be paid to the creditor associated with e

> Which of the following statements is true? a. The Securities Exchange Act of 1934 regulates intrastate stock offerings made by a company. b. The Securities Act of 1933 regulates the subsequent public trading of securities through brokers and markets. c.

> A company must prepare IFRS financial statements for the first time on December 31, 2022. According to IFRS 1, what is the date of transition to IFRS for this company? a. January 1, 2020 b. January 1, 2021 c. December 31, 2021 d. December 31, 2022

> Prior to the creation of government-wide financial statements, the City of Loveland did not report the cost of its infrastructure assets. Now city officials are attempting to determine reported values for major infrastructure assets that were obtained pr

> Hirsch Company acquired equipment at the beginning of 2020 at a cost of $135,000. The equipment has a five-year life with no expected salvage value and is depreciated on a straight- line basis. At December 31, 2020, Hirsch compiled the following informat

> Trecek Corporation incurs research and development costs of $650,000 in 2020, 30 percent of which relate to development activities subsequent to IAS 36 criteria having been met that indicate an intangible asset has been created. The newly developed produ

> Parnell Company acquired construction equipment on January 1, 2020, at a cost of $78,400. The equipment was expected to have a useful life of six years and a residual value of $10,000 and is being depreciated on a straight-line basis. On January 1, 2021,

> Harrington Company was sued by an employee in late 2020. General counsel concluded that there was an 80 percent probability that the company would lose the lawsuit. The range of possible loss is estimated to be $20,000 to $70,000, with no amount in the r

> Tapatio S.A. de C.V. acquired a new piece of manufacturing equipment on January 1, 2019, for a cash price of 500,000 pesos. The equipment was expected to have a useful life of 10 years and no residual value, and is being depreciated on a straight-line ba

> Sapporo K.K. was sued by a competitor in late 2020, and company management concluded that there was a 55 percent probability that the company would lose the lawsuit. The best estimate of the loss on December 31, 2020, was 4,000,000 yen. In 2021, the laws

> Llungby AB spent 1,000,000 krone in 2020 on the development of a new product. The company determined that 25 percent of this amount was incurred after the criteria in IAS 36 for capitalization as an intangible asset had been met. The newly developed prod

> Mikkeli OY acquired a brand name with an indefinite life in 2021 for 40,000 markkas. At December 31, 2020, the brand name could be sold for 35,000 markkas, with zero costs to sell. Expected cash flows from the continued use of the brand are 42,000 markka

> On January 1, 2020, Xiamen Company made amendments to its defined benefit pension plan that resulted in 60,000 yuan of past service cost. The plan has 5,000 active employees with an average expected remaining working life of 15 years. There currently are

> Surat Limited paid cash to acquire an aircraft on January 1, 2020, at a cost of 30,000,000 rupees. The aircraft has an estimated useful life of 40 years and no salvage value. The company has deter- mined that the aircraft is composed of three significant

> The City of Bainland has been undergoing financial difficulties because of a decrease in its tax base caused by corporations leaving the area. On January 1, 2020, the city has a fund balance of only $400,000 in its governmental funds. In 2016, the city h

> Izmir A.S. issued convertible bonds at their face value of 100,000 lira on December 31, 2020. The bonds have a 10-year life with interest of 10 percent payable annually. At the date of issue, the pre- vailing interest rate for similar debt without a conv

> What amount does Newberry’s consolidated income statement report for cost of goods sold for the year ending December 31, 2021? a. $16,000 b. $17,000 c. $18,000 d. $19,000

> What amount does Newberry’s consolidated balance sheet report for this inventory at December 31, 2020? a. $16,000 b. $17,000 c. $18,000 d. $19,000

> Millager Company is a U.S.-based multinational corporation with the U.S. dollar (USD) as its reporting currency. To prepare consolidated financial statements for 2020, the company must trans- late the accounts of its subsidiary in Mexico, Cadengo S.A. On

> Diekmann Company, a U.S.-based company, acquired a 100 percent interest in Rakona A.S. in the Czech Republic on January 1, 2019, when the exchange rate for the Czech koruna (Kčs) was $0.05. Rakona’s financial statements as of

> On January 1, 2019, Cayce Corporation acquired 100 percent of Simbel Company for consideration transferred with a fair value of $126,000. Cayce is a U.S.-based company headquartered in Buffalo, New York, and Simbel is in Cairo, Egypt. Cayce accounts for

> Sendelbach Corporation is a U.S.-based organization with operations throughout the world. One of its subsidiaries is headquartered in Toronto. Although this wholly owned company operates primarily in Canada, it engages in some transactions through a bran

> The following account balances are for the Agee Company as of January 1, 2020, and December 31, 2020. All amounts are denominated in kroner (Kr). Additional Information ∙ Agee issued additional shares of common stock during the year on

> Livingston Company is a wholly owned subsidiary of Rose Corporation. Livingston operates in a foreign country with financial statements recorded in pounds (P), the company’s functional currency. Financial statements for the year 2020 ar

> Kingsfield establishes a subsidiary operation in a foreign country on January 1, 2020. The country’s currency is the rial (R). To start this business, Kingsfield invests 10,000 rials. Of this amount, it spends 3,000 rials immediately to

> Charles Edward Company established a subsidiary in a foreign country on January 1, 2020, by investing FC 3,200,000 when the exchange rate was $0.50/FC. Charles Edward negotiated a bank loan of FC 3,000,000 on January 5, 2020, and purchased plant and equi

> Christina Company (a U.S.-based company) has a subsidiary in Canada that began operations at the start of 2020 with assets of 132,000 Canadian dollars (CAD) and liabilities of CAD 54,000. During this initial year of operation, the subsidiary reported a p

> Lancer, Inc. (a U.S.-based company), establishes a subsidiary in Croatia on January 1, 2019. The following account balances for the year ending December 31, 2020, are stated in kuna (K), the local currency: The following U.S.$ per kuna exchange rates are

> Zugar Company is domiciled in a country whose currency is the dinar. Zugar begins 2020 with three assets: Cash of 20,000 dinars, Accounts receivable of 80,000 dinars, and Land that cost 200,000 dinars when acquired on April 1, 2019. On January 1, 2020, Z

> Rolfe Company (a U.S.-based company) has a subsidiary in Nigeria, where the local currency unit is the naira (NGN). On December 31, 2019, the subsidiary had the following balance sheet (amounts are in thousands [000s]): The subsidiary acquired the invent

> Refer to the information in problem 26. Prepare a statement of cash flows in pounds for Sullivan’s Island Company’s foreign subsidiary, and then translate this statement into U.S. dollars.

> 2. Sullivan’s Island Company began operating a subsidiary in a foreign country on January 1, 2020, by investing capital in the amount of 60,000 pounds. The subsidiary immediately borrowed 140,000 pounds on a five-year note with 10 perce

> The Isle of Palms Company (IOP), a U.S.-based entity, has a wholly owned subsidiary in Israel that has been determined as having the Israeli shekel (ILS) as its functional currency. On October 1, 2019, the Israeli subsidiary borrowed 500,000 Swiss francs

> On December 18, 2020, Stephanie Corporation acquired 100 percent of a Swiss company for 4.0 million Swiss francs (CHF), which is indicative of book and fair value. At the acquisition date, the exchange rate was $1.00 = CHF 1. On December 18, 2020, the bo

> The following accounts are denominated in rubles as of December 31, 2020. For reporting purposes, these accounts need to be stated in U.S. dollars. For each account, indicate the exchange rate that would be used to translate the ruble balance into U.S. d

> What amount of foreign exchange gain or loss should be reflected in McCarthy’s 2020 consolidated net income? a. $8,000 loss. b. $10,000 loss. c. $2,000 gain. d. $5,000 gain.

> Highpoint owns a 95 percent majority voting interest in Middlebury. In turn, Middlebury owns an 80 percent majority voting interest in Lowton. In the current year, each firm reports the following income and dividends. Separate Company income figures do n

> At what amount should the Brazilian subsidiary’s euro note payable be reported on McCarthy’s December 31, 2020, consolidated balance sheet? a. $84,000. b. $86,000. c. $92,000. d. $128,800.

> Assume that the U.S. dollar is the subsidiary’s functional currency. What balances does a consolidated balance sheet report as of December 31, 2020? a. Marketable equity securities = $16,000 and Inventory = $16,000 b. Marketable equity securities = $17,0

> Assume that the won is the subsidiary’s functional currency. What balances does a consolidated balance sheet report as of December 31, 2020? a. Marketable equity securities = $16,000 and Inventory = $16,000. b. Marketable equity securities = $17,000 and

> Monument Company (a U.S.-based company) ordered a machine costing €100,000 from a foreign supplier on January 15, when the spot rate was $1.20 per €. A one-month forward contract was signed on that date to purchase €100,000 at a forward rate of $1.23. Th

> A U.S. exporter has a Thai baht account receivable resulting from an export sale on June 1 to a customer in Thailand. The exporter signed a forward contract on June 1 to sell Thai baht and designated it as a cash flow hedge of a recognized Thai baht rece

> Matthias Corp. had the following foreign currency transactions during 2020: ∙ Purchased merchandise from a foreign supplier on January 20 for the U.S. dollar equivalent of $60,000 and paid the invoice on April 20 at the U.S. dollar equivalent of $50,000.

> Grace Co. had a Chinese yuan payable resulting from imports from China and a Mexican peso receivable resulting from exports to Mexico. Grace recorded foreign exchange losses related to both its yuan payable and peso receivable. Did the foreign currencies

> On July 1, 2020, Mifflin Company borrowed 200,000 euros from a foreign lender evidenced by an interest-bearing note due on July 1, 2021. The note is denominated in euros. The U.S. dollar equivalent of the note principal is as follows: In its 2021 income

> Pacifico Company, a U.S.-based importer of beer and wine, purchased 1,000 cases of Oktoberfest- style beer from a German supplier for 50,000 euros. Relevant U.S. dollar exchange rates for the euro are as follows: The company closes its books and prepares

> Place Company owns a majority voting interest in Sassano, Inc. On January 1, 2019, Place issued $1,000,000 of 11 percent 10-year bonds at $943,497.77 to yield 12 percent. On January 1, 2021, Sassano purchased all of these bonds in the open market at a pr

> Based on past experience, Maas Corp. (a U.S.-based company) expects to purchase raw materials from a foreign supplier at a cost of 1,000,000 francs on March 15, 2021. To hedge this forecasted transaction, on December 15, 2020, the company acquires a call

> Amaretta Company (a U.S.-based company) ordered merchandise from a foreign supplier on November 20 at a price of 1,000,000 rupees when the spot rate was $0.050 per rupee. Delivery and payment were scheduled for December 20. On November 20, Amaretta acqui

> Brief, Inc., had a receivable from a foreign customer that is payable in the customer’s local currency. On December 31, 2020, Brief correctly included this receivable for 200,000 local currency units (LCU) in its balance sheet at $110,000. When Brief col

> On June 1, Parker-Mae Corporation (a U.S.-based company) received an order to sell goods to a foreign customer at a price of 100,000 francs. Parker-Mae will ship the goods and receive payment in three months, on September 1. On June 1, Parker-Mae purchas

> 37. On August 1, Pure Joy Corporation (a U.S.-based importer) placed an order to purchase merchandise from a foreign supplier at a price of 400,000 pounds. Pure Joy will receive and make payment for the merchandise in three months on October 31. On Augus

> On October 1, 2020, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on January 31, 2021, for a price of 1,000,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PL

> On November 30, 2020, Walter Corporation (a U.S.-based company) forecasts the sale of equipment to a foreign customer at a price of 500,000 crowns. The equipment is expected to be delivered on January 31, 2021, with payment received upon delivery. Also o

> On November 1, 2020, Cheng Company (a U.S.-based company) forecasts the purchase of goods from a foreign supplier for 100,000 yuan. Cheng expects to receive the goods on April 30, 2021, and make immediate payment. On November 1, 2020, Cheng enters into a

> On September 1, Westbrook Corporation purchased goods from a foreign supplier at a price of 1,000,000 francs and will make payment in three months on December 1. On September 1, West- brook acquired an option to purchase 1,000,000 francs in three months

> Use the same facts as in Problem 31 except that Icebreaker Company purchases materials from a foreign supplier on December 1, 2020, with payment of 16,000 dinars to be made on March 1, 2021. The materials are consumed immediately and recognized as cost o

> On January 1, 2019, Parker, Inc., a U.S.-based firm, acquired 100 percent of Suffolk PLC located in Great Britain for consideration paid of 52,000,000 British pounds (£), which was equal to fair value. The excess of fair value over book valu

> On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two- year, 1,000,000 Chinese yuan loan from a Chinese bank at an interest rate of 2 percent per year. The company makes interest payments annually on September 30 a

> On October 1, Tile Co., a U.S. company, purchased products from Azulejo, a Portuguese company, with payment due on December 1. If Tile’s operating income included no foreign exchange gain or loss, the transaction could have a. Been denominated in U.S. do

> Spindler, Inc. (a U.S.-based company), imports surfboards from a supplier in Brazil and sells them in the United States. Purchases are denominated in terms of the Brazilian real (BRL). During 2020, Spindler acquires 200 surfboards at a price of BRL 1,600

> On April 1, 2020, Mendoza Company (a U.S.-based company) borrowed 500,000 euros for one year at an interest rate of 5 percent per annum. Mendoza must make its first interest payment on the loan on October 1, 2020, and will make a second interest payment

> Voltac Corporation (a U.S.-based company) has the following import/export transactions denominated in Mexican pesos in 2020: Currency exchange rates for 1 peso for 2020 are as follows: For each of the following accounts, what amount will Voltac report on

> On December 15, 2020, Lisbeth Inc. (a U.S.-based company) purchases merchandise inventory from a foreign supplier for 50,000 schillings. Lisbeth agrees to pay in 45 days, after it sells the merchandise. Lisbeth makes sales rather quickly and pays the ent

> On December 20, 2020, Momeier Company (a U.S.-based company) sold parts to a foreign customer at a price of 50,000 rials. Payment is received on January 10, 2021. Currency exchange rates are as follows: a. How does the fluctuation in the U.S. dollar per

> Bento Corporation (a U.S.-based company) acquired merchandise on account from a foreign supplier on November 1, 2020, for 100,000 crowns. It paid the foreign currency account payable on January 15, 2021. The following exchange rates are relevant: a. How

> What is the net impact on Good Life Company’s 2021 net income as a result of this hedge of a forecasted foreign currency transaction and import purchase? Assume that the raw materials are consumed and become a part of the cost of goods sold in 2021. a. $

> What is the net impact on Good Life Company’s 2020 net income as a result of this hedge of a forecasted foreign currency transaction? a. $–0– b. $400 decrease in net income c. $1,000 decrease in net income d. $1,400 decrease in net income

> On January 1, 2021, Acme Co. is considering purchasing a 40 percent ownership interest in PHC Co., a privately held enterprise, for $700,000. PHC predicts its profit will be $185,000 in 2021, projects a 10 percent annual increase in profits in each of th

> What is the net impact on Munchkin’s net income for the quarter ended September 30, 2020, as a result of this forward contract hedge of a firm commitment and export sale? a. $–0– b. $115,000 increase in net income c. $118,000 increase in net income d. $1

> What is the net impact on Munchkin’s net income for the quarter ended June 30, 2020, as a result of this forward contract hedge of a firm commitment? a. $–0– b. $2,400 increase in net income c. $4,000 decrease in net income d. $8,000 increase in net inco

> What was the net impact on Stone Company’s 2021 income as a result of this fair value hedge of a firm commitment and export sale? a. $–0–. b. $1,300 decrease in income c. $78,000 increase in income d. $78,700 increase in income

> What was the net impact on Stone Company’s 2020 income as a result of this fair value hedge of a firm commitment? a. $–0– b. $700 decrease in income c. $300 increase in income d. $700 increase in income

> Shandra Corporation (a U.S.-based company) expects to order goods from a foreign supplier at a price of 100,000 pounds, with delivery and payment to be made on April 20. On February 20, when the spot rate is $1.00 per pound, Shandra purchases a two-month

> On March 1, Derby Corporation (a U.S.-based company) expects to order merchandise from a sup- plier in Norway in three months. On March 1, when the spot rate is $0.10 per Norwegian krone, Derby enters into a forward contract to purchase 500,000 Norwegian

> Assuming that Brandt entered into a forward contract to sell 10 million South Korean won on December 1, 2020, as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2020 resulting from a fluctuation in the val

> Assuming that Brandt did not hedge its foreign exchange risk, how much foreign exchange gain or loss should it report on its 2020 income statement with regard to this transaction? a. $5,000 gain b. $3,000 gain c. $2,000 loss d. $1,000 loss

> On December 1, 2020, Venice Company (a U.S.-based company) entered into a three-month for- ward contract to purchase 1,000,000 pesos on March 1, 2021. The following U.S. dollar per peso exchange rates apply: Ignoring present values, which of the followin

> Which of the following statements concerning FASB ASC 280 is true? a. Does not require segment information to be reported in accordance with generally accepted accounting principles b. Does not require a reconciliation of segment assets to consolidated a

> In 2018, CVS Health Corporation reported a $6.1 billion charge for the impairment of goodwill in one of its reporting units (segments) in its 10-K annual report. Referring to CVS Health’s 2018 financial statements and any other information from the media

> The Coca-Cola Company is organized geographically and defines reportable operating segments as regions of the world. The following information was extracted from Note 19 Operating Segments in the Coca-Cola Company 2017 Annual Report: Required 1. Calculat

> Volata Company began operations on January 1, 2019. In the second quarter of 2020, it adopted the FIFO method of inventory valuation. In the past, it used the LIFO method. The company’s interim income statements as originally reported u

> How much of this expense should Calloway’s income statement reflect for the quarter ending March 31? a. –0– b. $40,000 c. $120,000 d. $480,000

> Arryn, Inc., owns 95 percent of Stark Corporation’s voting stock. The acquisition price exceeded book and fair value by $85,500, which was appropriately attributed to goodwill. Stark holds 15 percent of Arryn’s voting stock. The price paid for the shares

> Arnold Corporation holds 70 percent of Belvista, which, in turn, owns 70 percent of Stang. Separate operating income figures (excluding investment income) and intra-entity upstream gains (on assets remaining within the consolidated group) included in the

> Diamond Company owns 80 percent of Emerald, and Emerald owns 90 percent of Sapphire, Inc. Separate operating income totals for the current year follow; they contain no investment income. None of these acquisitions required amortization expense. Included

> Which of the following is not a reason for two companies to file separate tax returns? a. The parent owns 68 percent of the subsidiary. b. They have no intra-entity transactions. c. Intra-entity dividends are tax-free only on separate returns. d. Neither

> How does the amortization of tax-deductible goodwill affect the computation of a parent com- pany’s income taxes? a. It is a deductible expense only if the parent owns at least 80 percent of the subsidiary’s voting stock. b. It is deductible only as impa

> Which of the following is correct for two companies that want to file a consolidated tax return as an affiliated group? a. One company must hold at least 51 percent of the other company’s voting stock. b. One company must hold at least 65 percent of the