40 Minutes, Strong
PROBLEM 15.6A
WOLFE COMPUTER
a.
Oct
28 Inventory of Raw Materials 1,890,000
Accounts Payable (Mitsutonka) 1,890,000
To record purchase of 20,000 disk drives from
Mitsutonka for ¥180,000,000 due in 30 days. Exchange
rate, $.0105 (¥180,000,000 X $.0105 = $1,890,000).
(£604,500 X $1.65 = $997,425).
27 Accounts Payable (Mitsutonka) 1,890,000
Gain on Fluctuations in Foreign Exchange Rates 54,000
Cash 1,836,000
To record payment of ¥180,000,000 liability to Mitsutonka
and to recognize gain from decline in exchange rate:
2 Inventory of Raw Materials 843,600
Accounts Payable (German Optical) 843,600
To record purchase of 10,000 monitors from German
9 Cash 985,335
Loss on Fluctuations in Foreign Exchange Rates 12,090
Accounts Receivable (Bank of England) 997,425
Collected £604,500 receivable from Bank of England
when exchange rate was $1.63 per British pound:
11 Accounts Receivable (Computique) 14,250,000
Cost of Goods Sold 7,400,000
Inventory of Finished Goods 7,400,000
To record sale of 10,000 computers to Computique for
SFr23,750,000, due in 30 days. Exchange rate $.6000
per franc (SFr23,750,000 X $.6000 = $14,250,000).
General Journal
9 Accounts Receivable (Bank of England) 997,425
Cost of Goods Sold 518,000
Inventory of Finished Goods 518,000
To record sale of 700 computers to Bank of England
for £604,500, due in 30 days. Exchange rate $1.65
PROBLEM 15.6A
WOLFE COMPUTER (continued)
b.
Dec 31 Accounts Payable (German Optical) 3,600
Gain on Fluctuations in Foreign Exchange Rates 3,600
Dec 31 Loss on Fluctuations in Foreign Exchange Rates 47,500
Accounts Receivable (Computique) 47,500
To adjust balance of SFr23,750,000 receivable from
Computique to amount indicated by year-end exchange rate:
Original 14,250,000$
Adjusted balance (SFr23,750,000 ×
$.5980) 14,202,500
Required adjustment (loss) 47,500$
c. Computation of unit sales price:
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:
Sales price, 10,000 units, in Swiss francs SFr23,750,000
Sales price in U.S. dollars (SFr23,750,000 ×
Sales price per unit ($14,250,000 ÷ 10,000 units) 1,425$
Amount paid, $1,836,000, divided by liability in yen,
General Journal
Adjusting Entries
Optical to amount indicated by year-end exchange rate:
Original account balance 843,600$
Required adjustment (gain) 3,600$
PROBLEM 15.6A
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 could be hedged by selling future contracts
30 Minutes, Medium
PROBLEM 15.7A
FCPA VIOLATIONS
40 Minutes, Medium
PROBLEM 15.8A
HOME DEPOT’S GLOBALIZATION
b.
2014 2015
c.
f.
Home Depot is not a multinational company. Home Depot’s management has stepped on a
Percentages of foreign long-lived assets and foreign net sales are modest in both years:
Home Depot uses the exchange rate on the last day of the reporting period to translate
SOLUTIONS TO PROBLEMS SET B
30 Minutes, Medium
PROBLEM 15.1B
MONSTER COOKIE COMPANY
a.
kr 37,500
(9,000)
c.
Profit if sold in the U.S.:
Total sales revenue in Danish kroner ($6,000 × 6.25 kroner/dollar*)
Materials and labor costs
Large fluctuations in exchange rates can affect the level of realized profits. However, the
(2,625)
kr 28,886
(9,000)
(5,555)
Profit if sold in Great Britain:
Total sales revenue in Danish kroner (2,600 pounds × 11.11 kroner/pound*)
Shipping costs in kroner ($2,800 × 6.25 kroner/dollar)
Misc. costs in kroner ($420 × 6.25 kroner/dollar)
Materials and labor costs
Shipping costs in kroner ($1,900 × 6.25 kroner/dollar)
Misc. costs in kroner (500 pounds × 11.11 kroner/pound)
Profit in kroner
25 Minutes, Easy
PROBLEM 15.2B
EUROAM
a.
Dec
1 Inventory 3,000,000
Accounts Payable (WMB Motors) 3,000,000
To record purchase of tractors from WMB
Dec
31 Loss on Fluctuations in Foreign Exchange Rates 120,000
Accounts Payable (WMB Motors) 120,000
To adjust balance of SFr4,000,000 account payable
to amount indicated by year-end exchange rate:
Original account balance 3,000,000$
Adjusted balance (SFr4,000,000 x $.78) 3,120,000
Required adjustment (loss) 120,000$
Jan 15 Accounts Payable (WMB Motors) 3,120,000
Gain on Fluctuations in Foreign Exchange Rates 40,000
To record payment of SFr4,000,000 account to WMB
Motors and to recognize gain from fall in
exchange rate since Dec. 31:
Account payable, adjusted balance 3,120,000$
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
Motors for SFr4,000,000 when exchange rate is $.75
per franc (SFr4,000,000 x $.75 = $3,000,000).
30 Minutes, Strong
IBC
c.
d.
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.
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)
Import duties (.04 × 1444; .12 × 540) (57.76) (64.80)
b. Profit per unit in dollars
c. Total profit in dollars
Thailand
Mexico
Assembly costs (1,805.00) (900.00)
Pretax profit per unit 1,748.24 745.20
Income tax per unit (30%; 28%) (524.47) (208.66)
Profit per unit 1,223.77 bhats 536.54 pesos
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
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 = $1,200,000).
24 Accounts Payable (Sutaki) 1,200,000
Gain on Fluctuations in Foreign Exchange Rates 50,000
Cash 1,150,000
To record payment of ¥120,000,000 liability to Sutaki
and to recognize gain from decline in exchange rate:
Original account balance 1,200,000$
Amount paid 1,150,000
Gain from decline in exchange rate 50,000$
Accounts Payable (Swiss Plastics) 56,000
To record purchase of 5,000 black cases from Swiss
Plastics for SFr80,000, due in 60 days. Exchange
rate, $.70 (SFr80,000 x $.70 = $56,000).
15 Cash 310,000
Loss on Fluctuations in Foreign Exchange Rates 10,000
Accounts Receivable (British Vibes) 320,000
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 Goods 5,000,000
To record sale of 6,000 consoles to Sounds for
NOK40,000,000, due in 30 days. Exchange rate $.20
per kroner (NOK40,000,000 x $.20 = $8,000,000).
General Journal
Cost of Goods Sold 160,000
Inventory of Finished Goods 160,000
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 = $320,000).
PROBLEM 15.6B
FOX GAMES (concluded)
b.
Dec 31 Accounts Payable (Swiss Plastics) 1,600
Gain on Fluctuations in Foreign Exchange Rates 1,600
To adjust balance of SFr80,000 liability to Swiss
Plastics to amount indicated by year-end exchange rate:
Dec 31 Loss on Fluctuations in Foreign Exchange Rates 800,000
Accounts Receivable (Sounds) 800,000
To adjust balance of NOK40,000,000 receivable from
Sounds to amount indicated by year-end exchange rate:
Original 8,000,000$
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 U.S. dollars
(£200,000 x $1.60 per pound) 320,000$
Alternative computation, using sale in kroner:
Sales price in U.S. dollars (NOK40,000,000 x
$.20 per kroner) 8,000,000$
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, $.00958 per yen.
e. (1)
(2)
General Journal
Adjusting Entries
Fox Games could have hedged its position in foreign accounts payable by purchasing an
Fox’s position in its foreign receivables could be hedged by selling future contracts in
Adjusted balance (SFr80,000 x $.68) 54,400
Required adjustment (gain) 1,600$
20 Minutes, Medium PROBLEM 15.7B
FCPA VIOLATIONS
Under the amended FCPA, activities a and d are illegal because both payments are intended to
help company P obtain business it may not otherwise have been awarded. Activities b and c
40 Minutes, Medium
CASE 15.1
BRISTOW, INC.
SOLUTIONS TO CRITICAL THINKING CASES
There are many factors that must be taken into account when faced with multiple globalization
strategy choices. These factors include (but are not limited to) control issues, feasibility issues,
cost, and fit between a particular choice and the firm’s long-term global strategy. If Bristow
If issues of control are not of primary importance, Bristow should consider licensing its
technology to a domestic firm or establishing a joint venture with Kale. A licensing agreement
would allow Kale to be supplied with Bristow products on a timely basis, but without a
50 Minutes, Medium
CASE 15.2
INTERNATIONAL
ACCOUNTING STANDARDS
Student opinions will vary on the topic. Interesting background information can be located by
browsing the IOSCO web site at:
40 Minutes, Medium
CASE 15.3
U.S. FOREIGN TRADE ZONES
INTERNET
a.
b.
Assembled Repackaged Manufactured
c.
1. The website describes the creation of FTZs as follows:
The National Association of Foreign Trade Zones home page is located at:
Answers to parts a through c can be located by clicking on the issues tab.
Applications for foreign trade zones are submitted to the Foreign Trade Zones Board
Legally, a Foreign Trade Zone (FTZ) is an area within the United States that the
The answers will differ depending on the state. The activities that can occur in a foreign
trade zone include the following:
The answers to the request for other information are below.
2.
BMW Samsung Electronics
Airbus Toyota
Spare parts may be stored, returned, or destroyed without duty payment.
Delays in Customs clearances and duty drawback are eliminated.
Customs duties are never paid on merchandise exported from a zone.
3. The following benefits are listed on the Web site:
1.
The following companies are some of the companies using FTZs:
Deferral of customs duties: Customs duties are paid only when and if merchandise
is transferred into U.S. Customs and Border Protection territory.
Honda Swavorski Lighting
General Electric Company Michelin
Schumacher Electric Bayer
Keurig Green Mountain Whirlpool
Coleman Many other companies
30 Minutes, Medium
CASE 15.4
INTERNATIONAL CORPORATE GOVERNANCE
ETHICS, FRAUD & CORPORATE GOVERNANCE
In particular, principle number five includes these suggestions for disclosure:
1. The financial and operating results of the company.
2. Company objectives and non-financial information.
Corporate governance involves a set of relationships between a company’s
management, its board, its shareholders and other stakeholders. Good corporate
governance is not an end in itself. It is a means to create market confidence and