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SOLUTIONS TO EXERCISES
Ex. 15.1
Ex. 15.2
Ex. 15.3
Ex. 15.4
a. Indonesia’s primary exports are oil, natural gas, electrical appliances, plywood,
textiles, and rubber. Imports include machinery and equipment, chemicals, fuels, and
foodstuffs.
b. The labor force numbers approximately 118 million with a high percentage being
e. Firms considering locating there must take into account the possibility of political
unrest, corruption, and lablor market restrictions.
Swiss francs.
The answers to this exercise will vary greatly depending on the firm chosen for study.
Most of the data required can be obtained by carefully reading the firm’s annual
The following answers are provided using exchange rates from May 2013. Student
responses will vary depending on current exchange rates.
a. 15,000 euros = $18,523.50
The World Fact Book discussion of Indonesia can be located at:
https://www.cia.gov/library/publications/the-world-factbook/geos/id.html
a. None (this describes an exchange rate)
b. Exporting
g. International Accounting Standards Board
f. None (this describes a market economy)
Education.
Ex. 15.5 a.
b.
f.
Ex. 15.6
Currenc
y
Used Effect
in Contract on Income
Answers are in italics: Column
Weak dollar. Companies that export United States-made products benefit from a
weak dollar, because the higher foreign exchange rates make U.S. goods less
expensive for foreign customers.
Strong dollar. A strong dollar means low foreign exchange rates, which, in turn,
countries.
Weak dollar. Even though this small store has no receivables or payables stated in
foreign currency, it still competes with stores selling foreign-made products. A
“weak” dollar raises the price of foreign goods to U.S. consumers, thereby making
the foreign goods less competitive with United States-made products.
Exchange Rate
Direction
Type of Credit
Transaction
Education.
Ex. 15.8
May 1
$120,000
There is a loss on the transaction of $2,000 because the Portuguese company will
pay 100,000 euros that will convert to $118,000 on July 31.
Accounts Receivable …………………
…
Ex. 15.12
Ex. 15.13 a.
Ex. 15.14
Ex. 15.15 China differs from the U.S. on many environmental factors. First, the U.S. has a
market economy and China has a planned economy, although it is moving toward a
market economy. In China, the culture tends to be low on individualism, high on
uncertainty avoidance and high on power distance. The Chinese communist party
in China is still in its infancy.
The adjustments to U.S. GAAP were related to upward revaluations of fixed
assets. Revaluations are acceptable under U.K. GAAP, but not under U.S.
GAAP where historical costs are required. Thus, net income increases because
assets.
Honda Motor Company might choose to report their financial results using IFRS
because they operate in several countries around the world and thus, are interested
in raising capital in many locations throughout the world. IFRS is accepted in more
countries than U.S. GAAP. However, the U.S. capital market is the largest capital
Answers will vary depending on the current exchange rates.
Education.
25 Minutes, Easy PROBLEM 15.2
A
GLOBAL MOTORS
a.
No
v
12 Inventor
y
2,572,000
Accounts Payable (Stockholm Motors
)
2,572,000
To record purchase of automobiles from Stockholm
Motors for sk20,000,000 when exchange
rate is $.1286 per krona
(sk20,000,000 × $.1286 = $2,572,000).
Dec 31 Loss on Fluctuations in Foreign Exchange Rates 4,000
Accounts Payable (Stockholm Motors
)
4,000
Account payable, adjusted balanc
e
2,576,000$
Amount paid, Jan. 11 2,566,800
Gain from decline in exchange rate 9,200$
b.
c.
General Journal
Computation of exchange rate on Jan. 11:
Amount paid, $2,566,800, divided by liability in Swedish kronor, sk20,000,000 = exchange
rate, $.12834 per krona.
On November 12, Global Motors could have purchased 60-day future contracts on 20
million kronor. These future contracts would have created a krona receivable of the same
Education.
30 Minutes, Strong GLOBAL PRODUCTS, INC.
a.
b.
d.
PROBLEM 15.3
A
The bonus calculation based on Mexican pesos pretax income is MXN 1,000,000 x 15% =
MXN 150,000. Converting to US Dollars using a current exchange rate of .08269 pesos/USD
x MXN 150,000 = $12,403.50 bonus.
The US dollar pretax income bonus is $(600,000) x 15% = $ (90,000) or no bonus.
Sales are translated at the average rate of $6,000/MXN 20,000 = $.30/ pesos.
The question is whether Global Products should use MXN income or USD income to
evaluate Senora Larza’s performance. There is no unequivocally correct answer to this
question. Issues that might be discussed include:
based pre-tax income may be appropriate.
• Does Senora Larza have the ability to “control” USD income?
• Do the translation procedures that result in a USD pre-tax loss make economic sense?
Education.
40 Minutes, Medium PROBLEM 15.4A
THE ULSA COMPANY
a.
Sales revenue per unit 645.00 Ringgits 70.00 Liri
Cost of components (215.00) (20.00)
Profit per unit 175.40 Ringgits 19.80 Liri
b. Profit per unit in dollars
(175.40 ringgits × .23 dollars/ringgit;
c. Total profit in dollars
($40.34 × 12,000 units; $49.50 × 8,000 units) $484,080 $396,000
On a total profit basis, the highest total profits will
be earned by assembling and selling product Y in
Malaysia.
Malaysia Malta
Education.
90 Minutes, Strong PROBLEM 15.5A
GLOBAL TRADE AGREEMENTS
Answers to the assignment will vary depending on what differences are highlighted. For
example the countries that have signed the agreements differ as well as the stipulations about
what goods are covered, how disputes are resolved, and how the accounting for costs and
tariffs are determined. Trade agreements allow goods to flow more freely across borders at
lower costs (lower tariffs) while simultaneously encouraging investment in the countries
involved in the agreements. Trade agreements can allow a business to access markets that
were previously unreachable, can expedite technology transfer between countries and create
Education.
40 Minutes, Strong PROBLEM 15.6
A
WOLFE COMPUTER
a.
Oct 28 Inventor
y
of Raw Materials 1,890,000
No
v
9 Accounts Receivable
(
Bank of En
g
land
)
997,425
Cost of Goods Sold 518,000
27 Accounts Pa
y
able
(
Mitsutonka
)
1,890,000
Gain on Fluctuations in Forei
g
n Exchan
g
e Rates 54,000
Cash 1,836,000
To record
p
a
y
ment of ¥180,000,000 liabilit
y
to Mitsutonka
and to reco
g
nize
g
ain from decline in exchan
g
e rate:
Gain from decline in exchan
g
e rate 54,000$
De
c
2 Inventor
y
of Raw Materials 843,600
9 Cash 985,335
Loss on Fluctuations in Forei
g
n Exchan
g
e Rates 12,090
Amount collected
(
£604,500 ´ $1.63
)
985,335
Loss from fall in exchan
g
e rate 12,090$
11 Accounts Receivable
(
Com
p
uti
q
ue
)
14,250,000
Cost of Goods Sold 7,400,000
Inventor
y
of Finished Goods 7,400,000
General Journal
PROBLEM 15.6
A
WOLFE COMPUTER (continued)
b.
Dec 31 Accounts Payable (German Optical
)
3,600
Gain on Fluctuations in Foreign Exchange Rates 3,600
To adjust balance of
€
1,200,000 liability to German
Optical to amount indicated by year-end exchange rate:
General Journal
Adjusting Entries
