Foreign Currency Transactions and Hedging Activities On October 1, 1999, the Keaton Company, a U.S. firm, sold merchandise to Chaplin, Inc., a British firm. The sales agreement specifies that Chaplin will make a payment of £500,000 to Keaton in 120 days on February 1, 1999. Relevant exchange rates are shown in the following table: Date Rate $/£ October 1, 1999 Spot $1.50 30-day forward 1.48 […]

Consolidation Goliath Corporation purchased all of Masonry Corporation’s outstanding stock on January 1, 1999, for $6,000,000.The purchase price was paid as follows: Goliath Corporation issued 40,000 shares of its own common stock, par $1, with a market price of $102/share, and cash paid of $1,920,000.The acquisition was accounted for as a purchase. Therefore, Masonry’s income statement has been included with Goliath’s since the acquisition date. […]

p>Interpreting Financial Statements: Foreign Currency Translation Review Reebok’s financial statements in Appendix E. Required a. Read Notes 1 and 13. Identify any unfamiliar or unusual terms. Match the terms presented in this chapter to the terms used by Reebok. b. Does the firm’s treatment of foreign currency translations seem to have any significant effect on its balance sheet? On its income statement? c. What other […]

Consolidation and Goodwill On January 1, 1999, Maplegrove Deli, Inc. purchased all of the outstanding stock of Bizno’s Sub Shops,Inc. for $4,500,000.Maplegrove paid $2,000,000 cash and issued 25,000 shares of its common stock, no par value, currently selling for $100 per share. The estimated fair value and carrying value of Bizno’s assets (purchased by Maplegrove) and liabilities (assumed by Maplegrove) approximated $6,200,000 and $1,920,000 respectively. […]

Foreign Currency Hedging In Du Pont Corporation’s 1994 annual report, Note 27 contained the following (partial) information: Principal foreign currency exposures and related hedge positions on December 31, 1994, were as follows: Open Contracts Net Monetary to Buy(Sell) Currency Asset (Liability) Foreign Currency Net After-Tax (Dollars in millions) Exposure After Tax Exposure British pound $(1,428) $1,427 $(1) Dutch gilder $ 273 $ (271) $ 2 […]

Consolidation: Adjustment to the Income Statement Presented below are condensed income statements for the MHL Company and its wholly owned subsidiary, PTE Inc., for the year ended December 31, 2000 (dollars in millions). MHL acquired its ownership of PTE in 1989. MHL Company PTE Inc. Sales $260 $180 Cost of sales (110) (75) Other operating expenses (145) (85) Net income 5 20 Required Explain how […]

Advantages and Disadvantages of Comprehensive Disclosures a. Managers of U.S. firms sometimes allege that they are at a disadvantage when selling securities in international markets because U.S. disclosure and measurement standards are more comprehensive, stringent, and costly than are those of most other nations. Assume that these managers are correct and propose a solution to the problem. b. Managers of non-U.S. firms sometimes argue that […]

Deferred tax – introductory example Version (a) On Jan 01, 01, entity E acquires software for CU 12, which is available for use on the same day. The software”s useful life is three years according to IFRS and four years under E”s tax law. Version (b) On Jan 01, 01, entity E acquires software for CU 12, which is available for use on the same […]

Continuation of Example 4 in the following year In the following year 02, entity E”s profit before tax according to IFRS is CU 100. E”s taxable profit for 02 is CU 140. The difference between these amounts arose as follows: 1. On Sep 01, 01, E acquired shares for CU 200 which are accounted for at fair value through other comprehensive income (IFRS 9.5.7.1b and […]

Deferred tax – change in the tax rate Entity E holds the following shares which were each acquired for CU 900: Shares of entity A: These shares meet the definition of “held for trading” (IFRS 9, Appendix A). Therefore, they are accounted for at fair value through profit or loss (IFRS 9.4.1.1–9.4.1.4, 9.5.7.1b, and 9.5.7.5). On Dec 31, 01, the carrying amount of these shares […]