Better Food Corporation (BFC) regularly purchases nutritional supplements from a supplier in Japan with the invoice price denominated in Japanese yen. BFC has experienced several foreign exchange losses in the past year due to increases in the U.S.-dollar price of the Japanese currency. As a result, BFC’s CEO, Harvey Carlisle, has asked you to investigate the possibility of using derivative financial instruments, specifically foreign currency forward contracts and foreign currency options, to hedge the company’s exposure to foreign exchange risk. Required: Draft a memo to CEO Carlisle comparing the advantages and disadvantages of using forward contracts and options to hedge foreign exchange risk. Make a recommendation for which type of hedging instrument you believe the company should employ, and provide your justification for this recommendation.
> Brown Corporation has an affiliate in France (Brun SA) that sells products manufactured at Brown’s factory in Columbia, South Carolina. In the current year, Brun SA earned €10 million before tax. Assume that the effective tax rate Brun SA pays in France
> Use the information provided in problem 25. Now assume that Intec Corporation’s Chinese operation is organized as a branch, and repatriates after-tax profits of RMB 200,000 to Intec on October 1. Required: Determine the following related to the income e
> Intec Corporation (a U.S.-based company) has a wholly owned subsidiary located in Shanghai, China, that generated income before tax of 500,000 Chinese renminbi (RMB) in the current year. The Chinese subsidiary paid Chinese income taxes at the rate of 25
> The corporate income tax rates in two countries, A and B, are 40 percent and 25 percent, respectively. Additionally, both countries impose a 30 percent withholding tax on dividends paid to foreign investors. However, a bilateral tax treaty between A and
> Heraklion Company (a U.S.-based company) is considering making an equity investment in an Australian manufacturing operation. The total amount of capital, in Australian dollars (A$), that Heraklion would need to invest is A$1,000,000. Heraklion has three
> .S. International Corporation (USIC), a U.S. taxpayer, has investments in Foreign Entities A–G. Relevant information for these entities for the current fiscal year appears in the following table: Additional Information 1. USICâ&
> Eastwood Company (a U.S.-based company) has subsidiaries in three countries: X, Y, and Z. All three subsidiaries manufacture and sell products in their host country. Corporate income tax rates in these three countries over the most recent three-year peri
> Pendleton Company (a U.S. taxpayer) is a highly diversified company with wholly owned subsidiaries located in South Korea and Japan. The South Korean operation manufactures electric generators that are sold in the Asian market. It generated pretax income
> Daisan Company is in the process of deciding where to establish a European manufacturing operation: France, Spain, or Sweden. Daisan’s home country does not have a tax treaty with any of these countries. Regardless of location, the operation is expected
> Avioco Limited has two branches located in Hong Kong and Australia, each of which manufactures goods primarily for export to countries in the Asia Pacific region. The corporate income tax rate in Avioco’s home country is 20 percent. The
> Lionais Company has a foreign branch that earns income before income taxes of 500,000 currency units (CU). Income taxes paid to the foreign government are CU 150,000 (30 percent). Sales and other taxes paid to the foreign government are CU 50,000. Lionai
> Mama Corporation (a U.S. taxpayer) has a wholly owned sales subsidiary in the Bahamas (Bahamamama Ltd.) that purchases finished goods from its U.S. parent and sells those goods to customers throughout the Caribbean basin. In the most recent year, Bahamam
> Assume that Yankee’s operation in Great Britain is incorporated as a subsidiary. Required: Determine the amount of U.S. taxable income, U.S. foreign tax credit, and net U.S. tax liability related to the British subsidiary (all in U.S. dollars).
> Assume that Yankee’s operation in Great Britain is registered with the British government as a branch. Required: Determine the amount of U.S. taxable income, U.S. foreign tax credit, and net U.S. tax liability related to the British branch (all in U.S.
> Bay City Rollers Inc., a U.S. company, has a branch located in São Antonio and another in the Bahian Islands. The foreign source income from the São Antonio branch is $150,000, and the foreign source income from the Bahian Island branch is $225,000. The
> Gamma Holding NV, a Dutch textile company, presented the following calculation of operating profit in its 2009 consolidated income statement: € × 1,000,000 2009 Net turnover……&
> Swisscom AG, the principal provider of telecommunications in Switzerland, prepares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Until 2007, Swisscom also reconciled its net income and stockholde
> Gamma Holding NV, a Dutch textile company, provided the following information in its consolidated income statement for the year 2009 (note that “result” is equivalent to “income”):
> The following excerpts were taken from the notes to consolidated financial statements in the 2006 annual report of the Novartis Group, the Swiss pharmaceutical company: Required: a. Determine whether the adjustments described in Note 33.9, Share-Based
> China Eastern Airlines (CEA) Corporation Limited prepares a set of financial statements in accordance with IFRS (in Chinese renminbi—RMB). Until 2007, the company also provided a reconciliation of IFRS net income and net assets to U.S.
> China Eastern Airlines (CEA) Corporation Limited presents two sets of financial statements in its annual report; one set is prepared in accordance with Chinese (PRC) accounting regulations, and one set is prepared in accordance with International Financi
> The parent company balance sheet for Babcock International Group PLC at March 31, 2010, is as follows: Required: Transform Babcock’s March 31, 2010, balance sheet to a U.S. format. Balance Sheet As at 31 March 2009 2009 2008 Notes
> SABMiller PLC was formed when U.S.-based Miller Brewing Company merged with South African Breweries in 2002. SABMiller uses IFRS in preparing its financial statements. The following is taken from the March 31, 2010, consolidated balance sheet of SABMille
> China Petroleum & Chemical Corporation (Sinopec) provides two sets of financial statements in its annual report. One set of financial statements is prepared in accordance with Chinese (PRC) Accounting Rules and Regulations, and the other is prepared
> Refer to the following information provided in the chapter for Arcot Company: • Consolidated financial statements in Exhibits 10.8 and 10.9. • Differences between Local GAAP and U.S. GAAP in Exhibit 10.10.
> Refer to the following information provided in the chapter for Arcot Company: • Consolidated financial statements in Exhibits 10.8 and 10.9. • Differences between Local GAAP and U.S. GAAP in Exhibit 10.10.
> Vale S.A., a Brazilian mineral products company, provided the following note on a voluntary basis in its 2009 annual report: 11—Cash Generation (Unaudited) Consolidated operating cash generation measured by EBITDA (earnings before fi na
> Palmers town Company established a subsidiary in a foreign country on January 1, Year 1, by investing 8,000,000 pounds when the exchange rate was $1.00/pound. Palmers town negotiated a bank loan of 4,000,000 pounds on January 5, Year 1, and purchased pla
> The consolidated income statement for Babcock International Group PLC is presented here: The income statement does not disclose any detail on the operating expenses that were subtracted in determining operating profit, but refers readers to several not
> The following Statement of Added Value (in millions of Brazilian reals) was presented in the 2009 annual report of Vale S.A., a Brazilian mineral products company: Required: a. Identify the external parties who might be interested in the information p
> Neopost SA is a French company operating mainly in Europe and the United States that sells and leases mailroom equipment. In accordance with IFRS, the company capitalizes development costs when certain criteria are met. The company reported the following
> Refer to the worksheets in Exhibits 10.12 and 10.13 in which the financial statements of Arcot Company have been restated to U.S. GAAP. Required: a. Calculate each of the ratios listed below using (1) the Local GAAP amounts in Column 1, and (2) the U.S.
> Geographic segment information can be used to determine how multinational a company is and the extent to which a company is diversified internationally. Refer to the geographic segment information provided by three U.S. companies in Exhibit 9.9. Require
> Iskender Corporation is a Turkish conglomerate with operations located throughout Europe and the Middle East. The company recently adopted International Financial Reporting Standards and has prepared disclosures to comply with IFRS 8, Operating Segments.
> Horace Jones Company consists of six business segments. The consolidated income statement as well as information about each of the segments for Year 1 as reported to the chief executive officer is as follows: HORACE JONES COMPANY Consolidat
> Sandestino Company contributes cash of $170,000 and Costa Grande Company contributes net assets of $170,000 to create Grand Sand Company on January 1, Year 1. Sandestino and Costa Grande each receive a 50 percent equity interest in Grand Sand. Grand Sand
> Auroral Company had the following investments in shares of other companies on December 31, Year 1: Required: Determine the appropriate method for including each of these investments in Auroral Company’s consolidated financial statem
> Petrodat Company provides data processing services for companies operating in the petroleum extraction business. On January 1, Year 1, Petrodat established two foreign subsidiaries—one in Mexico and the other in Venezuelaâ€&
> Columbia Corporation, a U.S.-based company, acquired a 100 percent interest in Swoboda Company in Lodz, Poland, on January 1, Year 1, when the exchange rate for the Polish zloty (PLN) was $0.25. The financial statements of Swoboda as of December 31, Year
> Doner Company Inc. begins operations on January 1, Year 1. The company’s unadjusted financial statements for the year ended December 31, Year 1, appear as follows: Revenues and expenses occur evenly throughout the year; revenues and o
> Antalya Company borrows 1,000,000 Turkish lire (TL) on January 1, Year 1, at an annual interest rate of 60 percent by signing a two-year note payable. During Year 1, the Turkish inflation index changed from 250 at January 1 to 387.5 at December 31. Req
> The following geographic segment information is provided in the 2012 annual report by two German automakers, BMW and Volkswagen: Required: Use the 2012 segment information provided by BMW and Volkswagen to answer the following questions: a. Which
> Sorocaba Company is located in a highly inflationary country and in accordance with IAS 29 prepares financial statements on a general purchasing power (inflation-adjusted) basis through reference to changes in the general price index (GPI). The company h
> The Year 1 financial statements of the Brazilian subsidiary of Artemis Corporation (a Canadian company) revealed the following: Brazilian Reals (BRL) Beginning inventory………………………………………………..100,000 Purchases………………………………………………………………500,000 Ending inventor
> Selected balance sheet accounts of a foreign subsidiary of the Pacter Company have been translated into parent currency ( F - ) as follows: Required: a. Assuming that the foreign subsidiary is determined to have the foreign currency as its functional
> To complete the requirements of this exercise, access the most recent Form 10-K for both Exxon Mobil and Chevron. Required: a. Determine whether each company’s foreign operations have a predominant functional currency. Discuss the implication this has f
> Brookhurst Company (a U.S.-based company) established a subsidiary in South Africa on January 1, Year 1, by investing 300,000 South African rand (ZAR) when the exchange rate was US$0.09/ZAR 1. On that date, the foreign subsidiary borrowed ZAR 500,000 fro
> Gramado Company was created as a wholly owned subsidiary of Porto Alegre Corporation on January 1, Year 1. On that date, Porto Alegre invested $42,000 in Gramado’s capital stock. Given the exchange rate on that date of $0.84 per cruzeiro, the initial inv
> Alexander Corporation (a U.S.-based company) acquired 100 percent of a Swiss company for 8.2 million Swiss francs on December 20, Year 1. At the date of acquisition, the exchange rate was $0.70 per franc. The acquisition price is attributable to the foll
> Zesto Company (a U.S. company) establishes a subsidiary in Mexico on January 1, Year 1. The subsidiary begins the year with 1,000,000 Mexican pesos (MXN) in cash and no other assets or liabilities. It immediately uses MXN600,000 to acquire equipment. Inv
> Alliance Corporation (an Australian company) invests 1,000,000 marks in a foreign subsidiary on January 1, Year 1. The subsidiary commences operations on that date, and generates net income of 200,000 marks during its first year of operations. No dividen
> Simga Company’s Turkish subsidiary reported the following amounts in Turkish lire (TL) on its December 31, Year 4, balance sheet: Equipment…………â€
> What is the net impact on Black Lion Company’s Year 1 net income as a result of this hedge of a forecasted foreign currency purchase? a. $0. b. A $200 increase in net income. c. A $300 decrease in net income. d. An $800 decrease in net income.
> What was the net increase or decrease in cash flow from having purchased the foreign currency option to hedge this exposure to foreign exchange risk? a. $0. b. A $1,000 increase in cash flow. c. A $1,700 decrease in cash flow. d. A $2,300 increase in cas
> What was the net impact on Keefer Company’s Year 1 income as a result of this fair value hedge of a firm commitment? a. $0. b. An $860.60 decrease in income. c. An $1,100.00 increase in income. d. A $1,960.60 increase in income.
> Assuming a forward contract to sell 100,000 Israeli shekels was entered into on December 1, Year 1, as a fair value hedge of a foreign currency receivable, what would be the net impact on net income in Year 1 resulting from a fluctuation in the value of
> Given its experience, Garnier Corporation expects that it will sell goods to a foreign customer at a price of 1 million lire on March 15, Year 2. To hedge this forecasted transaction, a three-month put option to sell 1 million lire is acquired on Decembe
> The Zermatt Company ordered parts from a foreign supplier on November 20 at a price of 100,000 francs when the spot rate was $0.80 per peso. Delivery and payment were scheduled for December 20. On November 20, Zermatt acquired a call option on 100,000 fr
> On June 1, Year 1, Tsanumis Corporation (a U.S.-based manufacturing fi rm) received an order to sell goods to a foreign customer at a price of 1 million euros. The goods will be shipped and payment will be received in three months on September 1, Year 1.
> Portofi no Company made purchases on account from three foreign suppliers on December 15, 2012, with payment made on January 15, 2013. Information related to these purchases is as follows: Portofi no Company’s fiscal year ends Decem
> After evaluating the risk of the investment described in Exercise 25-8, B2B Co. concludes that it must earn at least an 8% return on this investment. Compute the net present value of this investment. (Round the net present value to the nearest dollar.)
> Keith Riggins expects an investment of $82,014 to return $10,000 annually for several years. If Riggins earns a return of 10%, how many annual payments will he receive? (Use Table B.3.) Table B.3: ТАBLE B.3t p = | 1 /i (1 + i)". Present Value of an
> Jones expects an immediate investment of $57,466 to return $10,000 annually for eight years, with the first payment to be received one year from now. What rate of interest must Jones earn? (Use Table B.3.) Table B.3: ТАBLE B.3t p = | 1 /i (1 + i)".
> Catten, Inc., invests $163,170 today earning 7% per year for nine years. Use Table B.2 to compute the future value of the investment nine years from now. (Round the amount to the nearest dollar.) Table B.2: ТABLE B.2** f = (1 + i)" Future Value of
> Mark Welsch deposits $7,200 in an account that earns interest at an annual rate of 8%, compounded quarterly. The $7,200 plus earned interest must remain in the account 10 years before it can be withdrawn. How much money will be in the account at the end
> Bill Padley expects to invest $10,000 for 25 years, after which he wants to receive $108,347. What rate of interest must Padley earn? (Use Table B.2.) Table B.2: ТABLE B.2** f = (1 + i)" Future Value of 1 Rate Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
> Tom Thompson expects to invest $10,000 at 12% and, at the end of a certain period, receive $96,463. How many years will it be before Thompson receives the payment? (Use Table B.2.) Table B.2: ТABLE B.2** f = (1 + i)" Future Value of 1 Rate Periods
> Render Co. CPA is preparing activity-based budgets for 2015. The partners expect the firm to generate billable hours for the year as follows: The company pays $10 per hour to data-entry clerks, $40 per hour to audit personnel, $50 per hour to tax perso
> Qinto Company sells two types of products, basic and deluxe. The company provides technical support for users of its products, at an expected cost of $250,000 per year. The company expects to process 10,000 customer service calls per year. 1. Determine t
> Chan Company identified the following activities, costs, and activity drivers for 2015. The company manufactures two types of go-karts: fast and standard. 1. Compute a single plantwide overhead rate assuming that the company assigns overhead based on 1
> Claire Fitch is planning to begin an individual retirement program in which she will invest $1,500 at the end of each year. Fitch plans to retire after making 30 annual investments in the program earning a return of 10%. What is the value of the program
> Beene Distributing is considering a project that will return $150,000 annually at the end of each year for the next six years. If Beene demands an annual return of 7% and pays for the project immediately, how much is it willing to pay for the project?
> CII, Inc., invests $630,000 in a project expected to earn a 12% annual rate of return. The earnings will be reinvested in the project each year until the entire investment is liquidated 10 years later. What will the cash proceeds be when the project is l
> Flaherty is considering an investment that, if paid for immediately, is expected to return $140,000 five years from now. If Flaherty demands a 9% return, how much is she willing to pay for this investment?
> Megan Brink is offered the possibility of investing $6,651 today at 6% interest per year in a desire to accumulate $10,000. How many years must Brink wait to accumulate $10,000? (Use Table B.1.) Table B.1: ТАBLE B.1* p = 1/(1 + iy" Present Value of
> Ken Francis is offered the possibility of investing $2,745 today and in return to receive $10,000 after 15 years. What is the annual rate of interest for this investment? (Use Table B.1.) Table B.1: ТАBLE B.1* p = 1/(1 + iy" Present Value of 1 Rate
> On January 1, 2015, a company agrees to pay $20,000 in three years. If the annual interest rate is 10%, determine how much cash the company can borrow with this agreement.
> Fill in each of the blanks below with the correct term. 1. A ______ arises from a past decision and cannot be avoided or changed; it is irrelevant to future decisions. 2. ______ refer to the incremental revenue generated from taking one particular action
> Apple Inc. reports the following for three of its geographic segments for a recent year. All numbers are in millions of dollars. Compute profit margin for each division. Express answers as percentages, rounded to one decimal place. ($ millions) Ame
> Branson Belts makes hand-crafted belts. The company budgets production of 4,500 belts during the second quarter. Each belt requires 4 direct labor hours, at a cost of $12 per hour. Prepare a direct labor budget for the second quarter.
> Kelly Malone plans to have $50 withheld from her monthly paycheck and deposited in a savings account that earns 12% annually, compounded monthly. If Malone continues with her plan for two and one-half years, how much will be accumulated in the account on
> Steffi Derr expects to invest $10,000 annually that will earn 8%. How many annual investments must Derr make to accumulate $303,243 on the date of the last investment? (Use Table B.4.) Table B.4: TABLE B.4* f = [(1+ iyª – 1]/i Future Value of an An
> Algoe expects to invest $1,000 annually for 40 years to yield an accumulated value of $154,762 on the date of the last investment. For this to occur, what rate of interest must Algoe earn? (Use Table B.4.) Table B.4: TABLE B.4* f = [(1+ iyª – 1]/i
> Compute the amount that can be borrowed under each of the following circumstances: 1. A promise to repay $90,000 seven years from now at an interest rate of 6%. 2. An agreement made on February 1, 2015, to make three separate payments of $20,000 on Febru
> Refer to the information in Exercise 24-11. Assume that each of the company’s divisions has a required rate of return of 7%. Compute residual income for each division. Information from Exercise 24-11: Kraft Foods Group reports the foll
> Assume that you must make two-year-ahead future value estimates using the future value of 1 table (Table B.2). Which interest rate column and number-of-periods row do you use when working with the following rates? 1. 8% annual rate, compounded quarterly
> A machine costs $700,000 and is expected to yield an after-tax net income of $52,000 each year. Management predicts this machine has a 10-year service life and a $100,000 salvage value, and it uses straight-line depreciation. Compute this machine’s accou
> Mike Derr Company expects to earn 10% per year on an investment that will pay $606,773 six years from now. Use Table B.1 to compute the present value of this investment. (Round the amount to the nearest dollar.) Table B.1: ТАBLE B.1* p = 1/(1 + iy"
> 1. Which costing method tends to overstate the cost of high-volume products? ______ a. Traditional volume-based costing ______ b. Activity-based costing ______ c. Job order costing ______ d. Differential costing 2. If management wants the most accurate
> In the blank next to the following terms, place the letter A through D corresponding to the best description of that term. ______ 1. Activity ______ 2. Activity driver ______ 3. Cost pool ______ 4. Cost object A. Measurement associated with an activity.
> Presented below are terms preceded by letters a through j and a list of definitions 1 through 10. Enter the letter of the term with the definition, using the space preceding the definition. a. Fixed budget b. Standard costs c. Price variance d. Quantity
> USA Airlines uses the following performance measures. Classify each of the performance measures below into the most likely balanced scorecard perspective it relates to. Label your answers using C (customer), P (internal process), I (innovation and growth
> Match the terms a–e with their correct definition 1–5. a. Standard cost card b. Management by exception c. Standard cost d. Ideal standard e. Practical standard ______ 1. Quantity of input required under normal conditions. ______ 2. Quantity of input req
> Match the definitions 1 through 9 with the term or phrase a through i. A. Budget B. Merchandise purchases budget C. Cash budget D. Safety stock E. Budgeted income statement F. General and administrative expense budget G. Sales budget H. Master budget I.
> Identify at least four typical cost pools for activity-based costing in most organizations.
> What company circumstances especially encourage use of activity-based costing?
> What is an activity cost driver?
> In activity-based costing, costs in a cost pool are allocated to ______ using predetermined overhead rates.
> Assume that you are planning a spring break trip to Europe. Identify three locations where you can find exchange rates for the dollar relative to the euro or other currencies.
> Many service industries link labor rate and time (quantity) standards with their processes. One example is the standard time to board an aircraft. The reason time plays such an important role in the service industry is that it is viewed as a competitive
