30 Minutes, Medium PROBLEM 15.7
A
FCPA VIOLATION
S
Under the amended Foreign Corrupt Practices Act, only activity c would be considered illegal
since it is intended to help the firm garner business it may not otherwise obtain. Activities a, b
and d would be considered facilitating payments as these are intended to speed up the
provision of government services (a and d) or result in a higher level of services (b). From an
operations standpoint, all items (a through d) could be considered bad management practices.
These practices encourage a climate that expects extra payments to complete a job that should
be paid for by the government. Company A should work with government officials to prevent
government workers from accepting facilitating payments. In addition, Company A could
encourage the government to pay workers a living-wage so that facilitating payments would
not be necessary to maintain an adequate standard of living.
Education.
HOME DEPOT’S GLOBALIZATION
a.
b.
2011 2012
7.65% 7.55%
c.
d.
Home Depot has store locations in Mexico (100 stores) and Canada (180 stores). Home Depot
closed their China Stores. Home Depot also imports products from several countries.
operations is small compared to truly multinational companies.
Percentages of foreign total assets and foreign net sales declined between 2011 and 2012 as
the following table shows:
Home Depot uses the exchange rate on the last day of the reporting period to translate
foreign currency denominated assets and liabilities into U.S. dollars for financial reporting
purposes.
Note 1 suggests that Home Depot does use derivatives to manage foreign exchange rate risk.
Foreign Assets/Total Assets
Education.
30 Minutes, Medium PROBLEM 15.1B
MONSTER COOKIE COMPAN
Y
a.
kr 37,500
(9,000)
(5,555)
kr 2,456
c.
Profit if sold in the U.S.:
Total sales revenue in Danish kroner ($6,000 × 6.25 kroner/dollar*)
Materials and labor costs
*1 ÷ .09
Large fluctuations in exchange rates can affect the level of realized profits. However, the
estimates in parts “a” and “b” show a higher level of profits are expected from exporting to
Misc. costs in kroner (500 pounds × 11.11 kroner/pound)
Profit in kroner
Education.
25 Minutes, Easy PROBLEM 15.2B
EUROAM
a.
Dec 1 Inventory 3,000,000
Accounts Pa
y
able
(
WMB Motors
)
3,000,000
To record purchase of tractors from WMB
Motors for SFr4,000,000 when exchan
g
e rate is $.75
per franc
(
SFr4,000,000 x $.75 = $3,000,000
)
.
Dec 31 Loss on Fluctuations in Forei
g
n Exchan
g
e Rates 120,000
Accounts Pa
y
able
(
WMB Motors
)
120,000
To ad
j
ust balance of SFr4,000,000 account pa
y
able
exchan
g
e rate since Dec. 31:
Account pa
y
able, ad
j
usted balance 3,120,000$
Amount paid, Jan. 15 3,080,000
Gain from decline in exchange rate 40,000$
b.
c.
General Journal
Computation of exchange rate on Jan. 15:
On December 1, Euroam could have purchased 45-day future contracts on 4 million Swiss
francs. These future contracts would have created a Swiss franc receivable of the same size as
30 Minutes, Strong IBC
a.
b.
c.
d.
The bonus based on euro pretax income is 500,000 x 15% = 75,000 euros (using current
exchange rate of $1.00= 1.30 euros) implies a bonus of $97,500.
US dollar pretax income of $1,650,000 x 15% = $247,500 bonus
Translation timing differences may cause the difference in the average exchange rates used
The question is whether IBC should use euro-based income or USD income to evaluate Mr.
O’Brien’s performance.
There is no unequivocally correct answer to this question.
Issues that might be discussed include:
• What is the Irish subsidiary’s objective?
PROBLEM 15.3B
Sales are translated at the average rate of $51,950/40,000 euros = $1.30 per euro. Expenses
are translated at $50,300/39,500 = $1.27 per euro.
Education.
40 Minutes, Medium PROBLEM 15.4B
THE HALIDAY COMPANY
a.
Sales revenue per unit 5,055.00 bhats 2,250.00 pesos
Cost of components (1,444.00) (540.00)
Import duties (.04 × 1444; .12 × 540) (57.76) (64.80)
Assembly costs (1,805.00) (900.00)
b. Profit per unit in dollars
(1223.77 bhats × .0308 dollars/bhat; $37.65
536.54 pesos × .083 dollars/peso) $44.53
On a total profit basis, the highest total profits
will be earned by assembling and selling product
X in Thailand.
Thailand Mexico
Education.
90 Minutes, Strong PROBLEM 15.5B
NAFTA vs CAFTA-DR
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’ products to access markets that were
previously unreachable, can expedite technology transfer between countries and create jobs in
economically sound agreement between the U.S., Canada, and Mexico.
Education.
40 Minutes, Strong PROBLEM 15.6B
FOX GAMES
a.
Oct 25 Inventory of Raw Materials 1,200,000
Accounts Payable (Sutaki
)
1,200,000
To record purchase of 15,000 parts from
Sutaki for ¥120,000,000 due in 30 days. Exchange
rate, $.01 (¥120,000,000 x $.01 = $1,200,000).
No
v
15 Accounts Receivable (British Vibes
)
320,000
Cost of Goods Sold 160,000
Inventory of Finished Good
s
160,000
Sales 320,000
To record sale of 500 consoles to British Vibes
for £200,000, due in 30 days. Exchange rate $1.60
(£200,000 x $1.60 = $320,000).
24 Accounts Payable (Sutaki
)
1,200,000
Collected £200,000 receivable from British Vibes
when exchange rate was $1.55 per British pound:
Original receivable 320,000$
Amount collected (£200,000 x $1.55) 310,000
Loss from fall in exchange rate 10,000$
21 Accounts Receivable (Sounds
)
8,000,000
Cost of Goods Sold 5,000,000
Inventory of Finished Good
s
5,000,000
Sales 8,000,000
To record sale of 6,000 consoles to Sounds fo
r
NOK40,000,000, due in 30 days. Exchange rate $.20
per kroner (NOK40,000,000 x $.20 = $8,000,000).
General Journal
Education.
PROBLEM 15.6B
FOX GAMES (concluded)
b.
Dec 31 Accounts Payable (Swiss Plastics) 1,600
Gain on Fluctuations in Foreign Exchange Rates 1,600
To adjust balance of SFr80,000 liability to Swiss
To adjust balance of NOK40,000,000 receivable from
Sounds to amount indicated by year-end exchange rate:
Original 8,000,000$
Adjusted balance
(NOK40,000,000 x $.18) 7,200,000
Required adjustment (loss) 800,000$
c. Computation of unit sales price:
Sales price, 500 units, in British pounds £ 200,000
$.20 per kroner) 8,000,000$
Sales
p
rice
p
er unit
(
$8,000,000
6,000 units
)
1,333$
d. Computation of exchange rate for yen on Nov. 24:
Amount paid, $1,150,000, divided by liability in yen
,
¥120,000,000, equals exchange rate, $.0096 per yen.
e. (1)
General Journal
Adjusting Entries
Fox Games could have hedged its position in foreign accounts payable by purchasing an
equivalent amount of future contracts in these currencies, maturing at the same time as
Education.
(2) Fox’s position in its foreign receivables could be hedged by selling future contracts in
Education.