Question: Refer to the following information provided in
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.
• Reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11.
Use an electronic spreadsheet to complete the requirements of this problem.
Required:
a. Use the information in Exhibits 10.8 and 1 0.9 to create worksheets for the restatement of income and retained earnings and the balance sheet for the year ended December 31, Year 1.
b. Prepare debit/credit reconciling entries for each Year 1 reconciliation item included in the reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11
c. Post the debit/credit reconciling entries for Year 1 to the worksheets created in (a) and determine balances for Year 1 on a U.S. GAAP basis.
d. Calculate the following ratios on a Local GAAP and a U.S. GAAP basis for Year 1 and summarize the differences.
Current ratio [Current assets/Current liabilities]
Total asset turnover [Sales/Total assets at year-end]
Debt/equity ratio [Total liabilities/Total stockholders’ equity]
Times interest earned [(Income before income taxes + Interest expense)/
Interest expense]
Net profit margin [Net income/Sales]
Return on equity [Net income/Average total stockholders’ equity]
Operating profit margin [Operating income/Sales]
Operating income as percent of total stockholders’ equity [Operating income/
Average total stockholders’ equity]
Exhibits 10.8:
![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.
• Reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11.
Use an electronic spreadsheet to complete the requirements of this problem.
Required:
a. Use the information in Exhibits 10.8 and 1 0.9 to create worksheets for the restatement of income and retained earnings and the balance sheet for the year ended December 31, Year 1.
b. Prepare debit/credit reconciling entries for each Year 1 reconciliation item included in the reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11
c. Post the debit/credit reconciling entries for Year 1 to the worksheets created in (a) and determine balances for Year 1 on a U.S. GAAP basis.
d. Calculate the following ratios on a Local GAAP and a U.S. GAAP basis for Year 1 and summarize the differences.
Current ratio [Current assets/Current liabilities]
Total asset turnover [Sales/Total assets at year-end]
Debt/equity ratio [Total liabilities/Total stockholders’ equity]
Times interest earned [(Income before income taxes + Interest expense)/
Interest expense]
Net profit margin [Net income/Sales]
Return on equity [Net income/Average total stockholders’ equity]
Operating profit margin [Operating income/Sales]
Operating income as percent of total stockholders’ equity [Operating income/
Average total stockholders’ equity]
Exhibits 10.8:
Exhibits 10.9:
Exhibits 10.10:
Exhibits 10.11:](../images/refer-to-the-following-information-provided-in-the-chapter-for-arcot-company-85028-1.jpg)
Exhibits 10.9:
![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.
• Reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11.
Use an electronic spreadsheet to complete the requirements of this problem.
Required:
a. Use the information in Exhibits 10.8 and 1 0.9 to create worksheets for the restatement of income and retained earnings and the balance sheet for the year ended December 31, Year 1.
b. Prepare debit/credit reconciling entries for each Year 1 reconciliation item included in the reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11
c. Post the debit/credit reconciling entries for Year 1 to the worksheets created in (a) and determine balances for Year 1 on a U.S. GAAP basis.
d. Calculate the following ratios on a Local GAAP and a U.S. GAAP basis for Year 1 and summarize the differences.
Current ratio [Current assets/Current liabilities]
Total asset turnover [Sales/Total assets at year-end]
Debt/equity ratio [Total liabilities/Total stockholders’ equity]
Times interest earned [(Income before income taxes + Interest expense)/
Interest expense]
Net profit margin [Net income/Sales]
Return on equity [Net income/Average total stockholders’ equity]
Operating profit margin [Operating income/Sales]
Operating income as percent of total stockholders’ equity [Operating income/
Average total stockholders’ equity]
Exhibits 10.8:
Exhibits 10.9:
Exhibits 10.10:
Exhibits 10.11:](../images/refer-to-the-following-information-provided-in-the-chapter-for-arcot-company-85028-2.jpg)
Exhibits 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.
• Reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11.
Use an electronic spreadsheet to complete the requirements of this problem.
Required:
a. Use the information in Exhibits 10.8 and 1 0.9 to create worksheets for the restatement of income and retained earnings and the balance sheet for the year ended December 31, Year 1.
b. Prepare debit/credit reconciling entries for each Year 1 reconciliation item included in the reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11
c. Post the debit/credit reconciling entries for Year 1 to the worksheets created in (a) and determine balances for Year 1 on a U.S. GAAP basis.
d. Calculate the following ratios on a Local GAAP and a U.S. GAAP basis for Year 1 and summarize the differences.
Current ratio [Current assets/Current liabilities]
Total asset turnover [Sales/Total assets at year-end]
Debt/equity ratio [Total liabilities/Total stockholders’ equity]
Times interest earned [(Income before income taxes + Interest expense)/
Interest expense]
Net profit margin [Net income/Sales]
Return on equity [Net income/Average total stockholders’ equity]
Operating profit margin [Operating income/Sales]
Operating income as percent of total stockholders’ equity [Operating income/
Average total stockholders’ equity]
Exhibits 10.8:
Exhibits 10.9:
Exhibits 10.10:
Exhibits 10.11:](../images/refer-to-the-following-information-provided-in-the-chapter-for-arcot-company-85028-3.jpg)
![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.
• Reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11.
Use an electronic spreadsheet to complete the requirements of this problem.
Required:
a. Use the information in Exhibits 10.8 and 1 0.9 to create worksheets for the restatement of income and retained earnings and the balance sheet for the year ended December 31, Year 1.
b. Prepare debit/credit reconciling entries for each Year 1 reconciliation item included in the reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11
c. Post the debit/credit reconciling entries for Year 1 to the worksheets created in (a) and determine balances for Year 1 on a U.S. GAAP basis.
d. Calculate the following ratios on a Local GAAP and a U.S. GAAP basis for Year 1 and summarize the differences.
Current ratio [Current assets/Current liabilities]
Total asset turnover [Sales/Total assets at year-end]
Debt/equity ratio [Total liabilities/Total stockholders’ equity]
Times interest earned [(Income before income taxes + Interest expense)/
Interest expense]
Net profit margin [Net income/Sales]
Return on equity [Net income/Average total stockholders’ equity]
Operating profit margin [Operating income/Sales]
Operating income as percent of total stockholders’ equity [Operating income/
Average total stockholders’ equity]
Exhibits 10.8:
Exhibits 10.9:
Exhibits 10.10:
Exhibits 10.11:](../images/refer-to-the-following-information-provided-in-the-chapter-for-arcot-company-85028-4.jpg)
Exhibits 10.11:
![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.
• Reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11.
Use an electronic spreadsheet to complete the requirements of this problem.
Required:
a. Use the information in Exhibits 10.8 and 1 0.9 to create worksheets for the restatement of income and retained earnings and the balance sheet for the year ended December 31, Year 1.
b. Prepare debit/credit reconciling entries for each Year 1 reconciliation item included in the reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11
c. Post the debit/credit reconciling entries for Year 1 to the worksheets created in (a) and determine balances for Year 1 on a U.S. GAAP basis.
d. Calculate the following ratios on a Local GAAP and a U.S. GAAP basis for Year 1 and summarize the differences.
Current ratio [Current assets/Current liabilities]
Total asset turnover [Sales/Total assets at year-end]
Debt/equity ratio [Total liabilities/Total stockholders’ equity]
Times interest earned [(Income before income taxes + Interest expense)/
Interest expense]
Net profit margin [Net income/Sales]
Return on equity [Net income/Average total stockholders’ equity]
Operating profit margin [Operating income/Sales]
Operating income as percent of total stockholders’ equity [Operating income/
Average total stockholders’ equity]
Exhibits 10.8:
Exhibits 10.9:
Exhibits 10.10:
Exhibits 10.11:](../images/refer-to-the-following-information-provided-in-the-chapter-for-arcot-company-85028-5.jpg)
![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.
• Reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11.
Use an electronic spreadsheet to complete the requirements of this problem.
Required:
a. Use the information in Exhibits 10.8 and 1 0.9 to create worksheets for the restatement of income and retained earnings and the balance sheet for the year ended December 31, Year 1.
b. Prepare debit/credit reconciling entries for each Year 1 reconciliation item included in the reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11
c. Post the debit/credit reconciling entries for Year 1 to the worksheets created in (a) and determine balances for Year 1 on a U.S. GAAP basis.
d. Calculate the following ratios on a Local GAAP and a U.S. GAAP basis for Year 1 and summarize the differences.
Current ratio [Current assets/Current liabilities]
Total asset turnover [Sales/Total assets at year-end]
Debt/equity ratio [Total liabilities/Total stockholders’ equity]
Times interest earned [(Income before income taxes + Interest expense)/
Interest expense]
Net profit margin [Net income/Sales]
Return on equity [Net income/Average total stockholders’ equity]
Operating profit margin [Operating income/Sales]
Operating income as percent of total stockholders’ equity [Operating income/
Average total stockholders’ equity]
Exhibits 10.8:
Exhibits 10.9:
Exhibits 10.10:
Exhibits 10.11:](../images/refer-to-the-following-information-provided-in-the-chapter-for-arcot-company-85028-6.jpg)
Transcribed Image Text:
ARCOT COMPANY Consolidated Income Statements and Statements of Retained Earnings Years Ended December 31 (Millions of Crowns) Year 3 Year 2 Year 1 Sales . 9,148 8,348 7,952 Cost of goods sold Gross profit ... Operating expenses (4,415) (5,163) 3,985 (4,610) 3,738 3,537 (453) 3,532 (448) (421) Operating income 3,290 (128) 3,116 (186) (156) Interest expense Other income (expense), net 132 28 (12) Income before income taxes 3,508 3,190 2,918 (875) Provision for income taxes (1,052) 2,456 (957) Net income.... Retained earnings, January 1. Dividends 2,233 2,043 4,276 2,043 (340) 6,392 Retained earnings, December 31 4,276 2,043 ARCOT COMPANY Consolidated Balance Sheets December 31 (Millions of Crowns) Year 3 Year 2 Year 1 Cash 1,704 1,298 1,272 Accounts receivable. 2,798 2,381 2,064 Inventories.. 5,276 9,778 4,683 8,362 4,240 Total current assets 7,576 Property, plant, and equipment, net 11,807 11,104 9,524 Long-term investments 1,305 1,188 1,113 Deferred charges.. Total assets . 436 436 345 23,326 21,090 18,558 Accounts payable. 745 654 507 Accrued expenses 1,591 1,256 1,262 Short-term debt. 100 1,000 1,000 Dividends payable 340 204 2,980 Other current liabilities 182 115 Total current liabilities 3,092 2,884 Long-term debt.. 5,000 5,000 5,000 Deferred income taxes. 161 98 56 Other long-term liabilities 1,007 9,148 789 612 Total liabilities 8,979 8,552 Capital... Capital surplus. Retained earnings 150 150 150 8,055 7,575 7,575 6,392 4,276 2,043 Revaluation reserve 200 200 200 (119) (90) Unrealized gains (losses) Treasury stock .. Total stockholders' equity. 38 (500) 14,178 12,111 21,090 10,006 Total liabilities and stockholders' equity 23,326 18,558 ARCOT COMPANY Differences between Local GAAP and U.S. GAAP Note X. Differences between Local GAAP and U.S. GAAP The accompanying consolidated financial statements included in this annual report are propared in accordance with Local GAAP The signifikant differences between Local GAAP and U.S. GAAP that affect the Company's net income and stockholders equity are set out below. (1) Inventory As permittad by Local GAAP, some inventaris are valuod under the diract cost systom, which includes matorial, diroct labor, and other direct costs. For purposes of complying with U.S. GAAP, inventories have been valued under the full absorption cost method, which includes the indirect cost. As a result, the reconciliation reflects the difference in timing when indirect costs are recognized as expense. 2) Rovaluation of Property. Plant, and Equipment Under Local GAAP, the Company has recordod a revakation of certain of its fioed assets in prior years. Under US. GAAP, property. plant, and equipmentis recorded at its historical cost and revakuations are not allowed. As a result, the recondliation incudesa reversal of such revaluation and related deprociation recognized under Local GAAP (3) Capitalization of Intorest on Property, Plant, and Equipment Under Local GAAP, only intarest on loans obtained for the specific purpose of financing property, plant, and equipment is capitalzed. For U.S. GAMAP purposes, interest is capitalized during the construction period of qualifying assets, which requires capitalkzation of interest expense not only on loans obtained for the specific purpose of financing property, plant, and equipment. Interest is capitalizod hased on the average borrowing rate of the company appliod to qualifying asets under construction. As a result, the reconciliation includes an adjustment for the additional amount of interest that wouki be capitaized under U.S. GAAP as well as an adjustment for the additional amount of deprecialion on the larger cost of property, plant, and equipment (4) Deforred Chargos Under Local GAAP, preoperating oxperses incurred in the corstruction or exparsion of a new facity may be defened until the faclity bogirs commorcial oporations. Additionally all costs relatod to the organization and start-up of a new busines may be capitalized to the extont that they are considered recoverable. Defered charges are amortized over a period of five years. Under US. GAAP, the rules are restrictive as to the costs that can be capitalized. The amounts recorded as deferred charges under Local GAAP do not meet the criteria for capitakzation in U.S. GAAP and should be expensed as incured. As a result, the oconciation includes a revorsal of these charges which wore deforred under Local GAAP, and a ravarsal of the amortization of those deforad charges. (5) Salo of Land In connection with the sale of land in Year 3, the Company agreed to deliver the land within 24 months following the sale, free and dear of all buitings and fistures, as well as any onvironmantal claims. Undar Local GAAP, tha Company recognized a gain on the sale of land in the yoar of sale. Under U.S. GAAP, as a result of the Company's level of continuing involvement, the gain on the sale of land has been deferrd and will be recognized in eamings during the two years over which the company will continue to utike the property (6) Government Grants Under Local GAAP, subridized plant assats acquired in Year 1 wore required to be rocorded at fair valan, with the rekated subridy recognized as revene. Under US. GAAP, the subsidy is credted aganst the value of the assets acquired. The reconciling difference rewerses in future years as the subsidized ansets deprociate ) Rastructuring Costs Under Local GAAP, when a decision is takan to ntructuro, the nocensary provinions are made for severance and other conts. U.S GAAP requires a number of specific criteria to be met before restructuring costs can be ecogried as an epersa Among these citeria is the requirement that all the significant actions arising from the restructuring plan and their completion dates must be identified by the Balance Sheet date. Accordingly, timing differences between Local GAAP and U.S. GAAP arise on the recognition of such costs. (8) Derivative Financial Instruments Both Local GAAP and U.S. GAAP require all derivative financial instruments to be recorded on the balance sheet at their fair value. Changes in the fair values of derivatives during the period are required to be induded in the determination of net income unless the derivative qualifies as a hedge. The company applies hedge accounting to all qualifying instruments under Local GAAP. The company has elected not to apply hedge accounting under U.S. GAAP. Therefore, changes in the fair value of derivative financial instruments have been recorded directly in earnings for U.S. GAAP purposes. (9) Employee Share Trust Arrangements An employee share trust has been established in order to hedge obligations in respect of options issued under certain employee share option schemes. Under Local GAAP, the Company's ordinary shares held by the employee share trust are included at historical net book value in long-term investments. Under U.S. GAAP, such shares are treated as treasury stock and included in stockholders' equity. (10) Ordinary Dividends Under Local GAAP, proposed dividends on ordinary shares are deducted from shareholders' equity and shown as a liability on the balance sheet at the end of the period to which they relate. Under U.S. GAAP, such dividends are only deducted from shareholders' equity at the date of declaration of the dividend. The Company has not adjusted U.S. GAAP shareholders' equity for this difference in prior years. As a result, U.S. GAAP shareholders' equity has been restated to take account of this difference. ARCOT COMPANY Reconciliation from Local GAAP to U.S. GAAP The following is a summary of the material adjustments to net income and shareholders' equity, which would have been required if U.S. GAAP had been applied instead of Local GAAP (amounts in millions of Crowns). Differences in Net income Years Ended December 31 Note Year 3 Year 2 Year 1 Net income under Local GAAP. 2,456 2,233 2,043 Inventory indirect costs... Depreciation of revaluation of property, plant, and equipment...... Capitalized interest.... Depreciation of capitalized interest.... Deferred charges...... 1 169 (41) 60 2 40 40 3 12 15 3 (5) (3) (22) (18) (24) amortization of deferred charges. Gain on sale of land..... Government grants... Restructuring costs. Derivative financial instruments. Deferred tax effect of U.S. GAAP adjustments. 14 8 (124) 6 3 3 (27) 73 8 (49) (108) 38 (29) 2,526 (19) 2,086 32 .. Net income under U.S. GAAP. 2,158 Continued Differences In stockholders' equity December 31 Note Year 3 Year 2 Year 1 12,111 10,006 Stockholders' equity under Local GAAP Inventory Indirect costs Revaluation of property, plant, and equipment. Capitalized interest Deferred charges.. 14,178 1 188 19 60 2 (120) (160) (200) 19 24 15 (42) (34) (24) Galn on sale of land. (124) Government grants Restructuring costs. Employee share trust arrangement. Ordinary dividends... Deferred tax effect of U.S. GAAP adjustments Stockholders' equlty under U.S. GAAP 6 (21) 24) (27) 73 (62) (62) 10 340 (16) 4,413 13 (19) 9,811 11,887
> Cultural dimension index scores developed by Hofstede for six countries are reported in the following table: Required: Using Gray’s hypothesis relating culture to the accounting value of secrecy, rate these six countries as relative
> Refer to the income statements presented in Exhibits 2.9, 2.10, 2.11, 2.12, and 2 .13 for Callaway Golf Company, Südzucker AG, Cemex S.A.B. de CV, Sol Meliá SA, and Thai Airways. Required: a. Calculate gross profit margin (g
> Various attempts have been made to reduce the accounting diversity that exists internationally. This process is known as convergence and is discussed in more detail in Chapter 3. The ultimate form of convergence would be a world in which all countries fo
> As noted in the chapter, diversity in accounting practice across countries generates problems for a number of different groups. Required: Answer the following questions and provide explanations for your answers. a. Which is the greatest problem arising
> Astra Zeneca PLC, based in the United Kingdom, and Abbott Laboratories, based in the United States, are two of the largest pharmaceutical firms in the world. The following information was provided in each company’s 2012 annual report.
> The London Stock Exchange (LSE) provides a list of companies listed on the exchange on its Web site (www.londonstockexchange.com) under “Statistics” and “List of Companies.” Required: a. Determine the number of foreign companies listed on the LSE and th
> The New York Stock Exchange (NYSE) provides a list of non-U.S. companies listed on the exchange on its Web site (www.nyse.com). (Hint: Search the Internet for “NYSE List of Non-U.S. Listed Issuers.”) Required: a. Determine the number of foreign companie
> Global Electronics Company (GEC), a U.S. taxpayer, manufactures laser guitars in its Malaysian operation (LG-Malay) at a production cost of $120 per unit. LG Malay guitars are sold to two customers in the United States—Electronic Superstores (a GEC wholl
> Cooper Grant is the president of Acme Brush of Brazil, the wholly owned Brazilian subsidiary of U.S.-based Acme Brush Inc. Cooper Grant’s compensation package consists of a combination of salary and bonus. His annual bonus is calculated as a predetermine
> Sony Corporation reported the following in the Notes to Consolidated Financial Statements included in the company’s 2012 annual report on Form 20-F (p. F-49): Foreign Exchange Forward Contracts and Foreign Currency Option Contracts Foreign exchange forwa
> Sony Corporation reported the following in the summary of Significant Accounting Policies included in the company’s 2012 annual report on Form 20-F (p. F-16): Translation of Foreign Currencies All asset and liability accounts of foreign subsidiaries and
> The IRS has the authority to impose penalties on companies that significantly underpay taxes as a result of inappropriate transfer pricing. Acme Company transfers a product to a foreign affiliate at $15 per unit, and the IRS determines the correct price
> Ranger Company, a U.S. taxpayer, manufactures and sells medical products for animals. Ranger holds the patent on Z-meal, which it sells to horse ranchers in the United States. Ranger Company licenses its Bolivian subsidiary, Yery SA, to manufacture and s
> Denker Corporation has a wholly owned subsidiary in Sri Lanka that manufactures wooden bowls at a cost of $3 per unit. Denker imports the wooden bowls and sells them to retailers at a price of $12 per unit. The following information applies: Import dut
> ABC Company has subsidiaries in Countries X, Y, and Z. Each subsidiary manufactures one product at a cost of $10 per unit that it sells to each of its sister subsidiaries. Each buyer then distributes the product in its local market at a price of $15 per
> Guari Company, based in Melbourne, Australia, has a wholly owned subsidiary in Taiwan. The Taiwanese subsidiary manufactures bicycles at a cost equal to A$20 per bicycle, which it sells to Guari at an FOB shipping point price of A$100 each. Guari pays sh
> Smith-Jones Company, a U.S.-based corporation, owns 100 percent of Joal SA, located in Guadalajara, Mexico. Joal manufactures premium leather handbags at a cost of 500 Mexican pesos each. Joal sells its handbags to SmithJones, which sells them under Joal
> Akku Company imports die-cast parts from its German subsidiary that are used in the production of children’s toys. Per unit, part 169 costs the German subsidiary $1.00 to produce and $0.20 to ship to Akku Company. Akku Company uses part 169 to produce a
> Litchfield Corporation is a U.S.-based manufacturer of fashion accessories that produces umbrellas in its plant in Roanoke, Virginia, and sells directly to retailers in the United States. As chief financial officer, you are responsible for all of the com
> Superior Brakes Corporation manufactures truck brakes at its plant in Mansfield, Ohio, at a cost of $10 per unit. Superior sells its brakes directly to U.S. truck makers at a price of $15 per unit. It also sells its brakes to a wholly owned sales subsidi
> Lahdekorpi OY, a Finnish corporation, owns 100 percent of Three-O Company, a subsidiary incorporated in the United States. Required: Given the limited information provided, determine the best transfer pricing method and the appropriate transfer price in
> Bush Inc. has total income of $500,000. Bush’s Polish branch has foreign source income of $200,000 and paid taxes of $38,000 to the Polish government. The U.S. corporate tax rate is 35 percent. What is Bush’s overall f
> The exchange rate between the U.S. dollar (US$) and the euro (€) remained constant at €1.00 5 US$1.50 throughout 2013. Elizabeth Welch (a U.S. citizen) lives and works in France. In 2013, she earned income in France of €100,000, and paid taxes to the l
> The exchange rate between the U.S. dollar (US$) and the Hong Kong dollar (HK$) remained constant at HK$8.00 5 US$1.00 throughout 2013. Horace Gardner (a U.S. citizen) lives and works in Hong Kong. In 2013, Gardner earned income in Hong Kong of HK$960,000
> Brown Corporation has an affiliate in France (Brun SA) that sells products manufactured at Brown’s factory in Columbia, South Carolina. In the current year, Brun SA earned €10 million before tax. Assume that the effective tax rate Brun SA pays in France
> Use the information provided in problem 25. Now assume that Intec Corporation’s Chinese operation is organized as a branch, and repatriates after-tax profits of RMB 200,000 to Intec on October 1. Required: Determine the following related to the income e
> Intec Corporation (a U.S.-based company) has a wholly owned subsidiary located in Shanghai, China, that generated income before tax of 500,000 Chinese renminbi (RMB) in the current year. The Chinese subsidiary paid Chinese income taxes at the rate of 25
> The corporate income tax rates in two countries, A and B, are 40 percent and 25 percent, respectively. Additionally, both countries impose a 30 percent withholding tax on dividends paid to foreign investors. However, a bilateral tax treaty between A and
> Heraklion Company (a U.S.-based company) is considering making an equity investment in an Australian manufacturing operation. The total amount of capital, in Australian dollars (A$), 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.
> 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
> 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.-dolla
> 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
