PROBLEM 15.6
A
WOLFE COMPUTER (continued)
b.
Dec 31 Accounts Payable (German Optical
)
3,600
Required adjustment (gain) 3,600$
Dec 31 Loss on Fluctuations in Foreign Exchange Rates 47,500
Accounts Receivable (Computique
)
47,500
To adjust balance of SFr23,750,000 receivable from
Computique to amount indicated by year-end exchange rate
:
Sales price, 700 units, in British pounds £ 604,500
Sales price, 700 units, in U.S. dollars
(£604,500 × $1.65 per pound) 997,425$
Sales price per unit ($997,425 ÷ 700 units) 1,425$
Alternative computation, using sale in francs:
Amount paid, $1,836,000, divided by liability in yen
,
¥180,000,000, equals exchange rate, $.0102 per yen.
General Journal
Adjusting Entries
PROBLEM 15.6
A
WOLFE COMPUTER (concluded)
e. (1)
(2)
Wolfe Computers could have hedged its position in foreign accounts payable by
Wolfe’s position in its foreign receivables (payables) could be hedged by selling
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
40 Minutes, Medium PROBLEM 15.8
A
HOME DEPOT’S GLOBALIZATION
a.
b.
2011 2012
c.
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.
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.
SOLUTIONS TO PROBLEMS SET B
30 Minutes, Medium PROBLEM 15.1B
MONSTER COOKIE COMPAN
Y
a.
kr 37,500
c.
Profit if sold in the U.S.:
Total sales revenue in Danish kroner ($6,000 × 6.25 kroner/dollar*)
*1 ÷ .09
Large fluctuations in exchange rates can affect the level of realized profits. However, the
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 = $3,000,000
)
.
To ad
j
ust balance of SFr4,000,000 account pa
y
able
to amount indicated b
y
y
ear-end exchan
g
e rate:
Ori
g
inal account balance 3,000,000$
Adjusted balance (SFr4,000,000 x $.78) 3,120,000
Motors and to reco
g
nize
g
ain from fall in
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
y
(
)
30 Minutes, Strong IBC
a.
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
PROBLEM 15.3B
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)
The highest profits per unit will be earned by
assembling and selling product X in Mexico.
On a total profit basis, the highest total profits
will be earned by assembling and selling product
X in Thailand.
Thailand Mexico
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