Cutler Manufacturing manufactures and distributes specialty piping used in the construction industry. Due to the recent contraction in the commercial construction market, the company has had difficulty servicing its outstanding debt. In particular, debt bearing interest at a stated rate of 6% with 42 remaining payments of $15,000 per month is being considered for restructuring. In spite of this difficulty, the company is not deemed to experiencing financial difficulties such that it would qualify for a troubled debt restructuring. The creditor and the company have identified several alternatives as follows: a. Convey vacant land with a fair market value of $380,000 and a book value of $260,000 to the creditor along with a commitment to make 40 monthly payments of $5,067.60 each. b. Convey vacant land with a fair market value of $380,000 and a book value of $260,000 to the creditor along with a commitment to make 60 monthly payments of $3,000 each. The new debt has a fair value of $160,000. For each of the above restructuring alternatives, determine the impact on the company’s income statement for the first two months of the restructuring period.
> Jacobs and Levine are partners in a plumbing contracting business. Jacobs was divorced and the divorce stipulation states that his ex-spouse is to receive the following as maintenance for any given year: 1. Monthly maintenance payments of $2,500 througho
> Raymond is a senior partner in a manufacturing firm and is approaching retirement age. In discussing succession planning with the company partners, two alternatives have been presented to Raymond. The first alternative would call for Raymond to receive a
> Sandburg and Williams are the owners of a partnership that manufactures commercial lighting fixtures. Profits are allocated among the partners as follows: Sandburg was divorced as of the beginning of 2015 and as part of the divorce stipulation agreed t
> Rockford, Skeeba, and Tapinski are partners in a business which manufactures specialty railings. Their profit and loss agreement provides for the allocation of profits and losses as follows: 1. Salaries of $50,000, $40,000, and $55,000 for Rockford, Skee
> Raymack Manufacturing, headquartered in Michigan, is a manufacturer of equipment component parts used in a number of industries. The company’s financial statements and related footnotes contain the required segment reporting. The financial statements are
> Tress Corporation is a rapidly growing company that has diversified into a number of different segments. The following partial trial balance, which includes the effect of intercompany transactions, is for the current year ended December 31: Net Sales .
> A U.S. multinational corporation has divided its operations into several operating segments and has provided the following data for each segment: It is important to note that all purchases of goods or services from other segments have been sold to ou
> You are presenting segmental information regarding your company to the finance committee of the board of directors and have been asked the following questions. Provide your response to each of the following questions: Required 1. How is it possible that
> A new client of yours has prepared the following condensed income statement for the second quarter of 2015. Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $280,000 Less: Sales returns and allowances . . . .
> The following schedule was developed for Monroe Corporation to support interim reporting for the year 2014. The following additional 2014 information is available: 1. The statutory tax rate is as follows: 15% on the first $50,000 of taxable income 20%
> A company has acquired two derivatives: an option to buy foreign currency (FC) and a forward contract to buy FC. Both derivatives were acquired on the same day, for the same notional amount and expire on May 31. Relevant information involving the derivat
> Radix, Inc., operates primarily as a distributor of components for gasoline compressors. In the first quarter of 2015, the company reported a gross profit of $248,000 on net sales of $1,360,000. After considering selling, general, and administrative expe
> McClure Manufacturing reported a pretax loss from operations of $45,000 for the first quarter of 2017. The estimated effective annual tax rate at that time was based on the following information: 1. A statutory tax rate of 32% and annual estimated tax cr
> Roberts Corporation began operations in 2013 and finally began to report pretax profits in 2014. However, a major economic downturn in 2015 has negatively impacted the company’s operations. Required For each of the following quarters o
> Assume the same facts as Problem 11-8 with the following exceptions: a. Tobac’s functional currency is the U.S. dollar. b. Balfour’s investment in Tobac consists of the following: Initial investment (33,000,000 FC × $0.55) ..............................
> Balfour Corporation acquired 100% of Tobac, Inc., a foreign corporation, for 33,000,000 FC. The acquisition, which was accounted for as a purchase, occurred on July 1, 2015, when Tobac’s equity, in FC, was as follows: Common stock. .
> Campione Manufacturing acquired an 80% interest in DaLuca Distributors, a foreign corporation established on November 1, 2010, for 650,000 foreign currency units (FC). Campione acquired its 80% interest on June 30, 2012, when DaLuca’s s
> Prospect International, a U.S. company, acquired an 80% controlling interest in the equity of a foreign corporation, Aspic Developments. At the time of the acquisition, January 1, 2014, Prospect paid 880,000 foreign currency (FC) for its interest, which
> Moser International, a U.S. corporation, acquired a 100% interest in Gilmore Enterprises, a foreign corporation, which manufactures avionic components. Although Gilmore accounts for its activity using foreign currency A (FCA), it has been determined that
> On October 1, 2013, Kemper International acquired a 90% interest in the equity of Spruco Manufacturing when the subsidiary’s equity was 8,000,000 foreign currency (FC), including retained earnings with a balance of 3,000,000 FC. Kemper
> Due to increasing pressures to expand globally, Pueblo Corporation acquired a 100% interest in Sorenson Company, a foreign company, on January 1, 2016. Pueblo paid 12,000,000 FC, and Sorenson’s equity consisted of the following: Common
> On January 1, one U.S. dollar can be exchanged for eight foreign currencies (FC). The dollar can be invested short term at a rate of 4%, and the FC can be invested at a rate of 5%. 1. Calculate the direct and indirect spot exchange rates as of January 1.
> WTC Manufacturing, Inc., has an 80% interest in a foreign subsidiary, Mofoco Manufacturing. Relevant details regarding WTC’s investment in Mofoco are as follows: Date of acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . .
> In order to demonstrate the use of the re measurement process, assume that at the beginning of the year a U.S. parent company invested 100,000 foreign currency B (FCB) to form a 100% owned subsidiary. The subsidiary immediately invested the foreign curre
> In the process of preparing a budget for the second quarter of the current fiscal year, Anderson Welding, Inc., has forecasted foreign sales of 1,200,00 foreign currency (FC). The company is concerned that the dollar will strengthen relative to the FC an
> On March 1, a company committed to acquire 10,000 units of inventory to be delivered on May 31. The purchase price is to be paid in foreign currency (FC) in the amount of 200,000 FC. Assume that the commitment’s negative values are $7,9
> Medical Distributors, Inc., is a U.S. company that buys and sells used medical equipment throughout the United States and Canada. During the month of June, the company had the following transactions with Canadian parties: 1. Purchased used equipment on J
> Kaiser Exporters buys used medical equipment and sells it to various foreign health care institutions. On June 15, the company committed to sell medical equipment to a foreign hospital for 800,000 FC. The equipment, with a cost of $325,000, was shipped t
> Jarvis Corporation transacts business with a number of foreign vendors and customers. These transactions are denominated in FC, and the company uses a number of hedging strategies to reduce the exposure to exchange rate risk. Several such transactions ar
> Hauser Corporation has $20,000,000 of outstanding debt that bears interest at a variable rate and matures on June 30, 2018. At inception of the debt, the company had a lower credit rating, and most available financing carried a variable rate. The company
> During the third quarter of the current year, Beamer Manufacturing Company invested in derivative instruments for a variety of reasons. The various investments and hedging relationships are as follows: a. Call Option A—This option was p
> Industrial Plating Corporation coats manufactured parts with a variety of coatings such as Teflon, gold, and silver. The company intends to purchase 100,000 troy ounces of silver in September. The purchase is highly probable, and the company has become c
> Williams Corporation imports, from a number of German manufacturers, large machining equipment used in the tooling industry. On June 1, the company received delivery of a piece of machinery with a cost of 450,000 euros when the spot rate was 1 euro equal
> Pasu International purchased a plant in Louisiana on December 31, 2015, and financed $20,000,000 of the purchase price with a 5-year note. The note bears interest at the fixed rate of 5%, and payments on the note are made quarterly in the amount of $1,13
> Clayton Industries sells medical equipment worldwide. On March 1 of the current year, the company sold equipment, with a cost of $160,000, to a foreign customer for 200,000 euros payable in 60 days. At the same time, the company purchased a forward contr
> Custom Brand Bakeries, Inc. (CBBI), located in Erie, Pennsylvania, bakes a variety of products for various parties on a contract basis. For example, a food company may contract with CBBI to make energy bars that are then sold under the food companyâ
> On March 17, Kennedy Baking, Inc., committed to buy 1,000 tons of commodity A for delivery in May at a cost of $118 per ton. Concerned that the price of commodity A might decrease, on March 29 the company purchased a May put option for 1,000 tons of comm
> Each of the following is an independent fact situation involving an extinguishment or restructuring of debt. Debt A—On January 1, 2015, the company borrowed $3,000,000 after incurring $100,000 of related debt issuance costs. The note had a term of three
> St. John Corporation is barely solvent and has been seeking an equity investor that would be interested in making a capital contribution so that the company would hopefully return to performance levels it had experienced in the past. At the end of the pr
> Matmart Corporation is contemplating seeking a voluntary liquidation under Chapter 7 of the Bankruptcy Reform Act. There are a large number of partially secured creditors who are opposed to the possibility of a liquidation and favor a restructuring of th
> Marshall Tool and Die Company has been experiencing significant foreign competition and a declining market. Annual net losses from operations have averaged $250,000 over the last three years. The company’s balance sheet as of December 3
> A partially completed statement of realization and liquidation is as follows: The following additional transactions have occurred through August 12 of the current year: a. Receivables collected amounted to $39,000. Receivables with a book value of $15,
> Casper Blueprinting, Inc., has filed under Chapter 7 of the Bankruptcy Code. The estimated net realizable value of its assets is as follows: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $ 23,
> A major cattle feeding operation has entered into a firm commitment to buy 100,000 bushels of corn to be delivered to its feed lot in Kansas. The corn is expected to be delivered in 90 days. The company is committed to pay $1.50 per bushel. If corn yield
> Peltzer Manufacturing is experiencing financial difficulties. Rather than entering into a lengthy bankruptcy proceeding, the company has reached an agreement with its long-term creditors to restructure various loans. The restructured loans are described
> Howard Manufacturing has two debts outstanding with a creditor. Howard is experiencing financial difficulties, and the creditor has granted a concession. Therefore, accounting for the debt in question qualifies as a troubled debt restructuring. At the da
> Ridgeway Builders, Inc., is in the residential construction industry and has been experiencing a business downturn. As a result of these economic conditions, the company is having difficulty serving its outstanding debt and is seeking relief outside of t
> Barber Technologies designs and develops software to be used for the management of inventory by both retailers and manufacturing firms. Over the past three years, the company has experienced significant competition and a declining market resulting in a s
> Frankton Corporation has experienced difficult financial times for the past five years resulting in serious cash flow problems, negative earnings, and increasing deficits in retained earnings. The negative cash flows from operations have been managed in
> Jason Jackson was killed in a mountain-climbing accident in British Columbia. As Jason’s trusted friend and CPA, you have been named executor of his estate and guardian to his minor child, Cody Jackson. Jason’s estate consists of the following assets sub
> Jack Mason is a single parent with three minor children. His will provides for the creation of a trust for the benefit of his three children. His entire net estate is to be placed into the trust, and the trustee is authorized to approve disbursements to
> Edith Leppert and her husband, Gerald Leppert, have net assets with market values of $4,300,000 and $2,400,000, respectively. The Lepperts have begun to do some estate tax planning and are developing various strategies based on the following assumptions:
> Charles Kamp, a divorced person, died in February of the current year with an estate consisting of assets valued at $7,008,000 and liabilities of $380,000. Charles’s will have contained the following provisions: a. Robert Sullivan would serve as executor
> On July 1, 2016, Hargrove Corporation issued a 2-year note with a face value of $4,000,000 and a fixed interest rate of 9%, payable on a semiannual basis. On January 15, 2017, the company entered into an interest rate swap with a financial institution in
> One of your clients has recently read about the goal of converging to International Accounting Standards and they are concerned about what impact it may have on their company. 1. Discuss some of the costs that a company might incur as part of its converg
> Sometimes an MNC may decide to use local currency to evaluate a foreign subsidiary. Required: Explain the circumstances under which it may be appropriate for an MNC to use local currency to evaluate a foreign subsidiary.
> It is impossible to separate the performance of a foreign subsidiary from that of its managers, and there is no need for it. Required: Critically comment on the preceding statement.
> There is no agreement internationally on how to address the issue of auditor liability. Required: Describe the approach taken in your own country in addressing the issue of auditor liability, and explain the rationale behind that approach.
> This chapter refers to the concept of accounting infrastructure, which encompasses the various environmental factors affecting the issues concerning auditing in a particular country. Required: Explain the environmental factors that affect the issues con
> Identify five key terms used in assessing the impact of climate change on a firm.
> Exhibit 15.10 provides an example of a company, Toyota, which has clearly stated its CSR policy in its annual report of 2010. Required: Identify another company which has stated its CSR policy in its 2012 annual report, and compare the main points highl
> The concept of the balanced scorecard is becoming increasingly popular among firms internationally. Required: Explain the possible reasons for the popularity of the balanced scorecard.
> Exhibit 15.7 provides an extract from the 2009 CSR report of a company in the IT industry, IBM Corporation. Required: Discuss the motivations for a company in another industry of your choice to prepare a CSR report, and identify the nature of the inform
> Exhibit 15.4 provides an example of an audit report of a Brazilian company for 2011, which refers to GRI-G3 sustainability guidelines. Required: Identify a 2012 audit report for a U.S. company which refers to GRI-G3 sustainability guidelines and compare
> The Corporate Responsibility Report 2010 of Coca-Cola Amatil Company is at http://ccamatil.com/InvestorRelations/AnnualReports/2009/2010%20 Sustainability%20Report.pdf. It mentions four global pillars. Required: Discuss the strategies, programs, and tar
> Following is the report of the Supervisory Board included in Daimler company’s 2009 Annual Report. REPORT OF THE SUPERVISORY BOARD Dear Shareholders, In eight meetings during the 2009 financial year, the Supervisory Board diligently fulfilled its duties
> Following is the corporate governance report of Honda Motor Company included in its 2009 Annual Report. 1. Basic Stance Regarding Corporate Governance Based on its fundamental corporate philosophy, the Company is working to enhance corporate governance a
> What is the PCAOB? What is its role in audit regulation?
> What is audit quality? What determines audit quality in a given country?
> What determines the primary role of external auditing in a particular country?
> What are the provisions in the Sarbanes-Oxley Act 2002 and the New York Stock Exchange listing requirements that are aimed at improving corporate governance and are directly related to audit committees?
> What are the main differences between the OECD Principles of Corporate Governance issued in 1999 and the revised version issued in 2004?
> According to Exhibit 13.8 , the top-three budget goals for divisional managers of Japanese companies are sales volume, net profit, and production cost, in that order, whereas those of U.S. companies are return on investment, controllable profit, and net
> What is the oversight role of an audit committee?
> What are the main factors that complicate the issue of auditor independence?
> What are some of the strategies adopted internationally to limit the auditor’s liability?
> What determines whether or not to issue an unqualified audit opinion on the compliance of a set of financial statements with IFRS?
> What are the main benefits of international harmonization of auditing standards?
> Why should MNCs be concerned about auditing issues?
> What are the problems caused by inflation in evaluating the performance of a foreign subsidiary?
> What issues are associated with the calculation of profit for a foreign subsidiary?
> Do you think it is important to separate the evaluation of the performance of a subsidiary from that of its manager? Why?
> What are the factors that influence the decision regarding the manner in which a particular subsidiary should be treated for purposes of performance evaluation (e.g., as a cost center or a profit center or an investment center)?
> Visit the Web site of Nokia Company (www.Nokia.com). Required: Comment on Nokia’s risk management activities as reported in the company’s 2009 annual report.
> What are the nonfinancial measures available to MNCs for evaluating foreign subsidiary performance?
> What differences can you identify between performance evaluation measures adopted by Japanese and U.S. MNCs?
> What are the main issues that need to be considered in designing and implementing a successful performance evaluation system for a foreign subsidiary?
> Explain the role of accounting in implementing multinational business strategy
> How do differences in cultural values across countries influence strategy implementation within an MNC?
> How does the organizational structure of an MNC influence its strategy implementation?
> Compare and contrast NPV and IRR as capital budgeting techniques.
> Explain the role of accounting in strategy formulation within an MNC.
> What are the external factors that influence strategy formulation within an MNC?
> What are the internal factors that influence strategy formulation within an MNC?
> Sedona Electronics of Arizona exports 25,000 Disc Drive Controllers (DDCs) per year to China under an agreement that covers the period 2009–2013. In China, the DDCs are sold for the RMB (Chinese currency) equivalent of $50 per unit. The total costs in th
> What are some of the problems of trying to regulate CSR practices through legislation?
> Identify five mechanisms for regulating CSR practices at the international level.
> Why is it necessary to regulate the CSR practices of firms?
> What are the implications of climate change for CSR?
> What motivates firms to engage in CSR practices?
