ADVANCE ACCOUNTING. Problem 1
On October 15, our company has executed a purchase order for new equipment to be purchased from a supplier in Denmark for a purchase price of DKK 1.2 million. The equipment is deliverable on March 31. In order to hedge the commitment to pay DKK1.2 million, we enter into a forward exchange contract on October 15 to receive DKK1.8 million on March 31 at an exchange rate of $0.17: DKK1. Assume the following exchange gates:
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Order Paper Now| Date | Spot Rates | Forward Rates |
| October 15 | $0.15:DKK1 | $0.17:DKK1 |
| December 31 | $0.16:DKK1 | $0.18:DKK1 |
| March 31 | $0.20:DKK1 | n/a |
Required: Prepare the journal entries to record the following:
- Execution of the purchase order and forward contract
- Adjusting entries at December 31
- Receipt of equipment and payment to equipment supplier on March 31.
Problem 2
Blanton Corporation is comprised of five operating segments. Information about each of these segments is as follows (in thousands):
| Linens | Kitchen | Grocery | Furniture | Stationery | ||||||||||||||||||||||||
| Sales to outsiders | $ | 47 | $ | 253 | $ | 22 | $ | 61 | $ | 14 | ||||||||||||||||||
| Intersegment transfers | 2 | 13 | 7 | 15 | 12 | |||||||||||||||||||||||
| Interest revenue – outsiders | 1 | – | 2 | 4 | – | |||||||||||||||||||||||
| Interest revenue – intersegment | – | 3 | – | – | 11 | |||||||||||||||||||||||
| Operating expenses – outsiders | 58 | 207 | 20 | 51 | 13 | |||||||||||||||||||||||
| Operating expenses – intersegment | 1 | 10 | 3 | 8 | 11 | |||||||||||||||||||||||
| Interest expense | – | 6 | – | 1 | – | |||||||||||||||||||||||
| Income taxes | (2 | ) | 5 | 2 | 3 | 12 | ||||||||||||||||||||||
| Tangible assets | 9 | 58 | 9 | 6 | 4 | |||||||||||||||||||||||
| Intangible assets | – | – | 2 | 4 | – | |||||||||||||||||||||||
| Intersegment loans | 4 | 3 | – | – | – | |||||||||||||||||||||||
| – |
Required:
- A) Which operating segments are reportable under the revenue test?
- B) What is the total amount of revenues in applying the revenue test?
- C) Which operating segments are reportable under the profit or loss test?
- D) In applying the profit or loss test, what is the minimum amount an operating segment must have in order to meet the profit or loss test for a reportable segment?
- E) Which operating segments are reportable under the asset test?
- F) In applying the asset test, what is the minimum amount an operating segment must have in order to meet the asset test for a reportable segment?
- G) Which operating segments are reportable?
- H) According to the test results for reportable segments, is there a sufficient number of reported segments or should any additional segments also be disclosed? Explain the reason for your conclusion.
Problem 3
Assume that our company owns a subsidiary operating in Switzerland. The subsidiary has adopted the Swiss Franc (CHF) as its functional currency. Our company operates this subsidiary like a division or branch office, making all of its operating decisions, including pricing its products. We conclude, therefore, that the functional currency of this subsidiary is the $US and that its financial statements must be remeasured prior to consolidation. Following are the subsidiary’s financial statements (in CHF) for the most recent year:
| Income statement: | |
| Sales | 3,000,000 |
| Cost of goods sold | -2,321,500 |
| Gross profit | 678,500 |
| Operating expenses | -252,000 |
| Depreciation | -225,000 |
| Remeasurement gain or loss | |
| Net income | 201,500 |
| Statement of retained earnings: | |
| BOY retained earnings | 1,506,500 |
| Net income | 201,500 |
| Dividends | -75,000 |
| Ending retained earnings | 1,633,000 |
| Balance sheet: | |
| Assets | |
| Cash | 850,000 |
| Accounts receivable | 1,273,300 |
| Inventory | 650,000 |
| PPE, net | 927,000 |
| Total Assets | 3,700,300 |
| Liabilities and Stockholders’ Equity | |
| Current Liabilities | 250,000 |
| Long-term Liabilities | 1,097,300 |
| Common Stock | 220,000 |
| APIC | 500,000 |
| Retained Earnings | 1,633,000 |
| Total Liabilities & Equity | 3,700,300 |
Our subsidiary also reports the following additional financial statement information (in CHF):
| Beginning inventory | 450,000 |
| Purchases | 2,521,500 |
| Ending inventory | -650,000 |
| Cost of Goods Sold | 2,321,500 |
| Land | 52,000 |
| Building | 750,000 |
| Accumulated Depreciation—Building | -500,000 |
| Equipment | 1,250,000 |
| Accumulated Depreciation—Equipment | -625,000 |
| PPE, net | 927,000 |
| Depreciation expense—Building | 100,000 |
| Depreciation expense—Equipment | 125,000 |
| Depreciation expense | 225,000 |
The relevant exchange rates for the $US value of the Swiss Franc (CHF) are as follows:
| BOY Rate | $0.60 |
| EOY rate | $0.80 |
| Avg. rate | $0.70 |
| Dividend rate | $0.77 |
| Historical rates: | |
| Beginning inventory | $0.60 |
| Land | $0.35 |
| Building | $0.35 |
| Equipment | $0.45 |
| Historical rate (Common Stock and APIC) | $0.20 |
Required: Remeasure the subsidiary’s income statement, statement of retained earnings, and balance sheet into $US for the current year (assume that the BOY Retained Earnings is $1,100,000).
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