Below you will find the balance sheet and income statement of a US Corp.'s foreign subsidiary at the end of its first year of operations.The following exchange rates were in effect during the period: Jan.1,2012 - $1 = 1FC Dec.31,2012 - $1.70 = 1FC The average exchange rate during the period was $1.40=1FC.The common stock was issued on January 1,2012. Assuming that the foreign currency is the functional currency,translate the financial statements into U.S.dollars. \(\begin{array}{l} \begin{array}{lll} \text {Balance Sheet}\\ \text {As of December 31 ,}\\ \text {(Amounts in Foreign Currency)}\\ \text {Assets:}\\ \text {Cash and cash equivalents}\\ \text {Accounts Receivable}\\ \text {Inventory}\\ \text {Current Assets}\\ \text {Equipment}\\ \text {Less: Accumulated depreciation}\\ \text {Equipment-Net}\\ \text {Land}\\ \text {Total assets}\\ \text {Liabilities}\\ \text {Accounts Payable}\\ \text {Accrued Salaries Payable}\\ \text {Rent Expense Payable}\\ \text {ncome Tax Payable}\\ \text {Current Liabilities}\\ \text {Long-term note payable}\\ \text {Total Liabilities}\\ \text {Stockholders' Equity:}\\ \text {Common stock}\\ \text {Retained earnings}\\ \text {Total liabilities and stockholders' equity}\\ \end{array} \begin{array}{lll} \\ 2012\\ \\ \\ 18,000 \\ 33,000 \\ \underline{24,000} \\ 75,000 \\ 42,225 \\ \underline{(1,725) }\\ 40,500 \\ \underline{34,500} \\ \underline{\underline{150,000}} \\ \\ 48,000 \\ 14,758 \\ 7,500 \\ \underline{3,000} \\ 73,258 \\ \underline{45,000}\\ 18,258\\ \\ 30,000\\ \underline{1,742}\\ \underline{150,00}\\ \end{array} \end{array}\) $\begin{array}{l} \begin{array}{lll} \text {Income Statement}\\ \text {For the year ended December 31,2012}\\ \text {(Amounts in foreign currency)}\\ \text {Revenues}\\ \text {Cost of goods sold}\\ \text {Gross Profit}\\ \text {Operating Expenses}\\ \text {Depreciation expense}\\ \text {Salary expense}\\ \text {Insurance Expense}\\ \text {Rent Expense}\\ \text {Interest Expense}\\ \text {Total Operating Expenses}\\ \text {Income from Operations}\\ \text {Income Tax Expense}\\ \text {Net income}\\ \text { Dividends paid to Common Shareholders } \end{array} \begin{array}{lll} \\ \\ \\ 97,500 \\ (58,500)\\ &39,000\\ \\ (1,725) \\ (24,625) \\ (1,700) \\ (4,875) \\ \underline{(2,520)}\\ &\underline{(35,445)}\\ &3,555 \\ &\underline{(1,067)} \\ &\underline{\underline{ 2.488}}\\ 747\\ \end{array} \end{array}$

The answer of Below you will find the balance sheet...

Exam 8: Investing Activities

Orman Company is a large international canning company.Orman uses straight-line depreciation for financial reporting purposes and accelerated depreciation for tax reporting.The company's tax rate is 35%.Selected financial information about Orman appears below. Orman Company Selected Financial data December 31, 2010 2009 2008 Property, Plant \& Equipment (net) \ 178,454 \ 162,369 \ 155,388 Total Assets 515,685 424,545 410,256 Deferred Tax Liability relating to Temporary Depreciation Differences 25,138 18,245 19,689 Common Shareholders' Equity 302,754 298,564 289,455 Sales \ 986,258 \ 888,965 Cost of Goods Sold 693,857 588,920 Depreciation Expense 48,265 39,640 Interest Expense 84,253 75,689 Net Income 124.581 91.025 Required: a.Compute the amount of depreciation expense that Orman recognized for income tax purposes for year 2010 and 2009.The amount reported as the deferred tax liability relating to temporary depreciation differences represents the cumulative income tax delayed as of each balance sheet date because Orman uses accelerated depreciation for tax purposes and straight-line depreciation for financial statement reporting. b.Compute the fixed asset turnover ratio for years 2010 and 2009 using the amounts reported for financial statement purposes. c.Compute the fixed asset turnover ratio for years 2010 and 2009 using the amounts reported for tax purposes.

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Question 1

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a.Compute the amount of depreciation expense that Orman recognized for income tax purposes for year 2010 and 2009.The amount reported as the deferred tax liability relating to temporary depreciation differences represents the cumulative income tax delayed as of each balance sheet date because Orman uses accelerated depreciation for tax purposes and straight-line depreciation for financial statement reporting.
$\begin{array}{lccc}&2010&2009\\ \text {Depreciation Exp.-Fin. Statements}&\$ 48,265& \$ 39,640\\ \text {Difference in Accel. and S-L Deprec.}\\ \text {(Ending Amt. - Beg. Amt.)/.35}\\(25,138-18,245) / .35 &19,694\\ (18,245-19,689) / .35&&(4,126) \\\\ \text {Deprec Exp - Tax Purposes}& \$ 67959 & \$ 35,514 \\\end{array}$

b.Compute the fixed asset turnover ratio for years 2010 and 2009 using the amounts reported for financial statement purposes.
$\begin{array}{l}\text { Fuxed As5et Tunnaver = Sales / Average Fixed As5ets }\\\begin{array} { l c c } & 2010 & 2009 \\\text { Sales } & 1986,258 & 1898,965 \\\text { Average Fixed As5ets } & 170,412 & 158,879\\\\\text { Fixed Aseet Turnover }&5.79&5.60\\\end{array}\end{array}$
c.Compute the fixed asset turnover ratio for years 2010 and 2009 using the amounts reported for tax purposes.
$\begin{array}{lccc} \text { Property, Plant \& Equipment (net) } &\$ 178,454& \$ 162,369 & \$ 155,388 \\ \text { Adjustment for Additional Deprec.} & \\ \text { Def. Tax amount/ .35 } &\underline{ -71,823} & \underline{-52,129}&\underline{-56,254}\\ \text { Property, Plant \& Equipment - TAX (net)} & \$ 106,631 & \$ 110,240& \$ 99,134\\\end{array}$

$\begin{array}{l}\begin{array} { l c c } & 2010 & 2009 \\\text { Sales } & \$ 986,258 & \$ 888,965 \\\text { Average Fixed Assets } & 108,436 & 104,687\\\\\text { Fixed Aseet Turnover }&9.10&8.49\\\end{array}\end{array}$

Firms recognize an impairment loss when the carrying amount of a tangible fixed asset is deemed "not recoverable" as specified by GAAP.GAAP defines a carrying amount as "not recoverable" if:

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B

Expenditures included in the cost of a long-lived asset are:

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Question 3

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D

The three types of costs incurred in coal production are acquisition costs (costs to acquire the coal rich lands plus the present value of future cash flows necessary to restore the sites minus the cost of the land),exploration costs (costs of mining),and development costs (pipes,roads,and so on,to extract and transport the coal to customers). Required: Should each of these costs be capitalized or expensed? Explain.

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Question 4

For U.S.GAAP,software development costs are capitalized as intangible assets:

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Question 5

Which of the following items would be charged to the cost of the building?

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Question 6

Below you will find the balance sheet and income statement of a US Corp.'s foreign subsidiary at the end of its first year of operations.The following exchange rates were in effect during the period: Jan.1,2012 - $1 = 1FC Dec.31,2012 - $1.70 = 1FC The average exchange rate during the period was $1.40=1FC.The common stock was issued on January 1,2012. Assuming that the foreign currency is the functional currency,translate the financial statements into U.S.dollars. Balance Sheet As of December 31 , (Amounts in Foreign Currency) Assets: Cash and cash equivalents Accounts Receivable Inventory Current Assets Equipment Less: Accumulated depreciation Equipment-Net Land Total assets Liabilities Accounts Payable Accrued Salaries Payable Rent Expense Payable ncome Tax Payable Current Liabilities Long-term note payable Total Liabilities Stockholders' Equity: Common stock Retained earnings Total liabilities and stockholders' equity 2012 18,000 33,000 75,000 42,225 40,500 48,000 14,758 7,500 73,258 18,258 30,000 Income Statement For the year ended December 31,2012 (Amounts in foreign currency) Revenues Cost of goods sold Gross Profit Operating Expenses Depreciation expense Salary expense Insurance Expense Rent Expense Interest Expense Total Operating Expenses Income from Operations Income Tax Expense Net income Dividends paid to Common Shareholders 97,500 (58,500) 39,000 (1,725) (24,625) (1,700) (4,875) 3,555 747

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Question 7

When a foreign entity operates as a relatively self-contained and integrated unit within a foreign country,normally,its functional currency is the ____________________________________________________________.

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Question 8

All of the following statements are true regarding accounting for software development costs except:

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Question 9

The functional currency of a foreign unit whose receivables and payables are denominated in foreign currency and not usually remitted to parent company is the ______________________________.

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Question 10

On January 1,2012,Brock Company purchased $200,000,8% bonds of Universal Co.at par.Interest is payable annually on December 31.The bonds mature in five years on December 31,2016. Required a.At the date of purchase at what amount should Brock record the bond investment? b.Determine the amount of cash interest Brock would receive in 2012. c.At December 31,2012 the bonds have a fair market value of $203,500 how will this information affect Brock's financial statements given that the bonds are classified as: 1.Held-to-Maturity 2.Trading 3.Available for Sale

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Question 11

The ____________________ method views a corporate acquisition as conceptually identical to the purchase of any single asset.

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Question 12

You are trying to determine the functional currency of a foreign unit.For the following three factors determine what conditions would result in the foreign currency being the functional currency: a.Sales Prices b.Financing c.Relationships between the Parent and the Foreign Unit

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Question 13

When one company acquires another company it may not be able to estimate the potential losses inherent in the acquired assets or the potential liability of the acquired company,for these reasons the acquirer may establish ________________________________________.

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Question 14

The term used to describe the amount of a company's annual interest cost that should be capitalized is known as:

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Question 15

Ashley Company Ashley Company purchased 2,000 of the 10,000 outstanding shares of Judd, Inc.'s common stock for $60,000 on January 1, 2010.During 2010, Judd declared a dividend of $5 per share and reported net income of $75,000.At the end of 2010 the market value of a share of Judd, Inc.stock has increased to $32 per share. -If Ashley Company accounts for the investment as a minority,active investment and uses the equity method to account for the investment,then Ashley will recognize what amount of 2010 income from the investment?

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Question 16

Which of the following is not a classification for a minority,passive investment?

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Question 17

Unrealized holding gains and losses from investments classified as available for sale are reported in _____________________________________________.

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Question 18

Most publicly traded firms in the United States use the ___________ method of depreciation for statement purposes.

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Question 19

When dividends from an investment are recognized as income,the investment must have been of which type?

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Question 20

Firms recognize an impairment loss when the carrying amount of a tangible fixed asset is deemed "not recoverable" as specified by GAAP.GAAP defines a carrying amount as "not recoverable" if:

Expenditures included in the cost of a long-lived asset are:

For U.S.GAAP,software development costs are capitalized as intangible assets:

Which of the following items would be charged to the cost of the building?

When a foreign entity operates as a relatively self-contained and integrated unit within a foreign country,normally,its functional currency is the ____________________________________________________________.

All of the following statements are true regarding accounting for software development costs except:

The functional currency of a foreign unit whose receivables and payables are denominated in foreign currency and not usually remitted to parent company is the ______________________________.

The ____________________ method views a corporate acquisition as conceptually identical to the purchase of any single asset.

You are trying to determine the functional currency of a foreign unit.For the following three factors determine what conditions would result in the foreign currency being the functional currency: a.Sales Prices b.Financing c.Relationships between the Parent and the Foreign Unit

When one company acquires another company it may not be able to estimate the potential losses inherent in the acquired assets or the potential liability of the acquired company,for these reasons the acquirer may establish ________________________________________.

The term used to describe the amount of a company's annual interest cost that should be capitalized is known as:

Which of the following is not a classification for a minority,passive investment?

Unrealized holding gains and losses from investments classified as available for sale are reported in _____________________________________________.

Most publicly traded firms in the United States use the ___________ method of depreciation for statement purposes.

When dividends from an investment are recognized as income,the investment must have been of which type?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

Income Flows versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Accounting Quality

Financing Activities

Operating Activities

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

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Exam 8: Investing Activities

Firms recognize an impairment loss when the carrying amount of a tangible fixed asset is deemed "not recoverable" as specified by GAAP.GAAP defines a carrying amount as "not recoverable" if:

Expenditures included in the cost of a long-lived asset are:

For U.S.GAAP,software development costs are capitalized as intangible assets:

Which of the following items would be charged to the cost of the building?

When a foreign entity operates as a relatively self-contained and integrated unit within a foreign country,normally,its functional currency is the ____________________________________________________________.

All of the following statements are true regarding accounting for software development costs except:

The functional currency of a foreign unit whose receivables and payables are denominated in foreign currency and not usually remitted to parent company is the ______________________________.

The ____________________ method views a corporate acquisition as conceptually identical to the purchase of any single asset.

You are trying to determine the functional currency of a foreign unit.For the following three factors determine what conditions would result in the foreign currency being the functional currency: a.Sales Prices b.Financing c.Relationships between the Parent and the Foreign Unit

When one company acquires another company it may not be able to estimate the potential losses inherent in the acquired assets or the potential liability of the acquired company,for these reasons the acquirer may establish ________________________________________.

The term used to describe the amount of a company's annual interest cost that should be capitalized is known as:

Which of the following is not a classification for a minority,passive investment?

Unrealized holding gains and losses from investments classified as available for sale are reported in _____________________________________________.

Most publicly traded firms in the United States use the _________________________ method of depreciation for ______________ statement purposes.

When dividends from an investment are recognized as income,the investment must have been of which type?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

Income Flows versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Accounting Quality

Financing Activities

Operating Activities

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

Most publicly traded firms in the United States use the ___________ method of depreciation for statement purposes.