OVERVIEW OF BRIEF EXERCISES, EXERCISES, PROBLEMS, AND CRITICAL
THINKING CASES
Brief
Exercises Topic Skills
B. Ex. 15.1 Foreign currency translations Analysis
B. Ex. 15.2 Purchases in a foreign currency Analysis, communication
B. Ex. 15.3 Currency strength Analysis
B. Ex. 15.4 Exchange rate fluctuations Analysis, communication
B. Ex. 15.5 Currency choice Analysis, communication
B. Ex. 15.6 Currency strength and gains and losses Analysis, communication
B. Ex. 15.7 Culture effects on business Analysis, judgment
B. Ex. 15.8 Currency fluctuation effects Analysis
B. Ex. 15.9 Foreign Corrupt Practices Act Analysis, judgment
B. Ex. 15.10
Exchange rate computation Analysis
Exercises Topic Skills
15.1 Global business terminology 15-1–15-8 Analysis
15.2 External financial reports and globalization
Analysis, research,
technology
15.3 Understanding exchange rate conversion Analysis
15.4
Locating international business
information
Analysis, research,
judgment
15.5
Real World: Boeing, Nikon, Peugot,
Caterpillar
15-2, 15-5 Analysis, communication
Currency fluctuations: who wins and who
loses?
15.6 Foreign currency transaction Analysis
15.7 Harmonization around the world
Analysis, research,
technology
15.8 Foreign currency sale journal entries Analysis
15.9
Real World: Home Depot’s International
expansion
Analysis, judgment
15.10
Matching foreign exchange gains and
losses
Analysis
15.11 Real World: Home Depot, Inc. Analysis, judgment
Foreign currency translation effects
15.12
Real World: Global sourcing costs for
Mattel, Inc.
Analysis
15-1, 15-2
15-4, 15-5
15-4
15-4, 15-7
15-3
15-5
15-6
15-4, 15-5
15-1, 15-2
15-4
15-2, 15-7,
15-8
15-4, 15-5
15-4
15-4
15-2
Objectives
Learning
15-5
15-5, 15-6
15-5, 15-6
15-8
Objectives
15-4
CHAPTER 15
GLOBAL BUSINESS AND ACCOUNTING
Learning
Exercises Topic Skills
15.13 Financial statement harmonization 15-2, 15-3 Analysis
15.14 Real World: Honda Motor Company 15-3 Analysis, judgment
Use of U.S. GAAP or IFRS
15.15
Analysis, research,
judgment
Sets A, B Skills
15.1 A,B Exchange rates and export decisions
15-4, 15-5,
15-7
Analysis
15.2 A,B
15-1, 15-
4–15-6
Analysis, communication
15.3 A,B
15-4 Analysis, communication
15.4 A,B Exchange rates and production decisions 15-4, 15-7 Analysis
15.5 A,B Understanding trade agreements 15-2, 15-7
Analysis, research,
technology
15.6 A,B
15-4–15–6 Analysis
15.7 A,B FCPA violations 15-8 Analysis, judgment
15.8 A Real World: Home Depot’s
globalization
15-1, 15-2,
15-6, 15-7
Analysis, judgment,
research
15.1
Globalization decisions are complex 15-1, 15-2 Analysis, judgment
15.2
Disclosure requirements
15-2, 15-3,
15-5
Analysis, communication,
judgment
15.3
U.S. Foreign Trade Zones Analysis, research,
(Internet) technology
15.4
15-2, 15-3
Analysis, research,
communication
(Ethics, fraud and corporate governance)
15-1, 15-2,
15-7
Learning
Objectives
Critical Thinking Cases
Comparing environmental factors
15-2
Problems
Topic
DESCRIPTIONS OF PROBLEMS AND CRITICAL THINKING CASES
Problems (Sets A and B)
15.1 A,B Crackle Cookie Company/Monster Cookie Company 30 Medium
Demonstrate how differences in costs and exchange rates between
countries can impact the profits earned from exportation. The student
must calculate the forecasted amount of profits to be earned from two
alternative export locations and consider how exchange rate volatility
may impact the decision of which export location to choose.
15.2 A,B Global Motors/Euroam 25 Easy
Prepare journal entries to record payment of liabilities stated in
krona/Swiss franc. Involves recognition of both gains and losses from
fluctuations in exchange rates. Student is asked to explain a hedging
technique that would protect the company from losses from exchange
rate fluctuations.
15.3 A,B Global Products Inc./IBC 30 Strong
Students investigate the impact of exchange rates on the income
statement. Provides insights into how foreign currency impacts
performance evaluation.
15.4 A,B Ulsa Company/Haliday Company 40 Medium
Students calculate profits to be earned in two different production and
selling locations. In addition to differences in production costs, the
student must consider the costs of foreign import duties and income
taxes.
15.5 A,B NAFTA vs. ASEAN-AFTA Initiative /NAFTA vs. CAFTA DR 90 Strong
This is an unstructured problem that asks students to research an
international trade agreement and compare and contrast its
requirements/restrictions with those of NAFTA. Designed to be a group
writing assignment or presentation exercise.
15.6 A,B Wolfe Computer/Fox Games 40 Strong
A more comprehensive problem involving gains and losses on both
receivables and payables stated in foreign currencies. Student is also
asked to explain techniques for hedging against losses on foreign
payments and foreign receivables.
Below are brief descriptions of each problem and case. These descriptions are accompanied by the
estimated time (in minutes) required for completion and by a difficulty rating. The time estimates
assume use of the partially filled-in working papers.
15.7 A,B FCPA Violations 30 Medium
Students are asked to assess four business activities for violation of the
FCPA. They also consider whether the activities are good business
practices and if alternative activities should be considered.
15.8 A Home Depot’s Globalization 40 Medium
This problem demonstrates how the financial statements of a company
can be used to assess its level of globalization. By evaluating the
number of countries with operations; the percentage of sales and assets
from foreign sources; and the foreign taxes paid, an investor can form
an opinion about a firm’s level of globalization.
Critical Thinking Cases
Bristow, Inc. 40 Medium
Presents several options a firm has for increasing its presence in a
foreign location. The student considers what factors are useful in
deciding the option most beneficial to the firm. Also demonstrates that
different options result in different informational needs.
International Financial Reporting Standards 50 Medium
Given a set of arguments for and against harmonization of international
accounting practices, the student is asked to write a one-page summary
of his/her opinions regarding the issue.
U.S. Foreign Trade Zones 40 Medium
Internet
Using the Web site, the student is asked to find information concerning
foreign trade zones located in their home state. The student is also
asked to read one of the several case studies included in the site and
answer follow-up questions.
International Demand for Corporate Governance 30 Medium
Ethics, Fraud & Corporate Governance
Using the OECD Web site, students are asked to write a short paper
about global efforts to create corporate governance.
15.4
15.1
15.2
15.3
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1.
2.
3. a.
4 .
5.
Different accounting standards have been developed in various countries because of differences
in:
The International Accounting Standards Board (IASB) was formed by the major accounting
Exhibit 15-1 indicates that over 200 of the world’s largest companies are located in the U.S.,
France, Germany, and the United Kingdom. Approximately 150 of the world’s largest companies
The economic system that a company has been operating under determines the type of
Korea is a collectivist society, meaning that it places a greater emphasis on interdependence
6. a.
•Political risk is related to unstable governments
b.
•Determine the amount of information available to investors
•Can be a planned economy where government controls accounting practices
c.
• People’s perceptions of economic situations differ in different societies
d.
7.
8.
Specify the purchase prices in U.S. dollars.
9.
Political and legal systems can affect accounting practices because:
Economic systems affect accounting practices because they:
The globalization of business is a process whereby managers begin to incorporate the impact of
international events and activities into their strategic planning. At the most basic level, domestic
Culture affects accounting practices because:
Technology and infrastructure affect accounting practices because:
Two ways that a company making purchases on account from foreign companies can protect
itself against the risk of losses from increases in the exchange rate are:
The Foreign Corrupt Practices Act required U.S. companies to maintain record keeping in all
business with the company that they might otherwise not have undertaken.
•Changes in taxes, tariffs and fees
10.
11.
12.
13.
15.
Hedging is the practice of minimizing or eliminating the risk of loss associated with foreign
The strengthening of the U.S. dollar relative to the euro means that $1 can purchase (or be
In an international licensing agreement, a domestic firm contractually agrees to allow a foreign
To maintain the highest level of control over production processes and quality, a firm could
Societies described as individualistic tend to place relatively more importance on individual
SOLUTIONS TO BRIEF EXERCISES
B. Ex.15.2 a.
b.
B. Ex.15.4 a.
b.
c.
Increasing exchange rates will cause losses for a company that makes credit
A company that sets its sales prices in U.S. dollars will not have receivables
Increasing exchange rates will create gains for a company that makes credit
The U.S. company will determine the dollar cost of this purchase by
The conversion of one currency to another is handled by banks in an
to the foreign company’s bank.
B. Ex.15.5
B. Ex.15.6
B. Ex.15.7
B. Ex.15.8
B. Ex.15.9
B. Ex.15.10
The purchasing agent should prefer to buy at prices stated in Mexican pesos. If
Students will need to consult an exchange converter on the internet, either
CompuTech should experience primarily gains as a result of the strong U.S.
One example of cultural differences provided on the website is between the
The Brazilian real increased in dollar value, so that Borso corporation had to
The Foreign Corrupt Practices Act (FCPA) was violated because foreign
SOLUTIONS TO EXERCISES
Ex. 15.2
Ex. 15.3
Ex. 15.4
c. $3,000 = 44,843.05 South African rand ($3,000 / 0.0669)
a. 15,000 euros = $17,008.50 (15,000 euros x 1.1339)
b. 7,000 Brazilian reals = $1,942.50 (7,000 reals x 0.2775)
The answers to this exercise will vary greatly depending on the firm chosen for study.
The following answers are provided using exchange rates from April 2016. Student
responses will vary depending on current exchange rates.
The World Fact Book discussion of Indonesia can be located at:
Ex. 15.1
a. None (this describes an exchange rate)
b. Exporting
c. International licensing
g. International Accounting Standards Board
d. Foreign Corrupt Practices Act
e. Hedging
f. None (this describes a market economy)
Ex. 15.5 a.
d.
Ex. 15.6
Currency Used Effect
in Contract on Income
Case 2 3 4
Weak dollar. Companies that export United States-made products benefit from a
Weak dollar. A weak dollar (high foreign exchange rates) makes U.S. products
less expensive to customers who buy these products using a foreign currency.
Exchange Rate
Direction
Type of Credit
Transaction
1
Answers are in italics:
Column
Ex. 15.8
Ex. 15.9 a.
Ex. 15.10
Matching
Transaction Letter
Foreign Currency
Effect
Foreign Exchange
Gain or Loss
a. b Appreciates Loss
Ex. 15.11
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.
Note 1 in the 2015 Home Depot annual report states that there are 182 Canadian
Transaction
The translation adjustment is a reduction comprehensive income of $412 million. A
translation adjustment occurs because assets, liabilities, payables, and receivables
Export Sale
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
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.
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
SOLUTIONS TO PROBLEMS SET A
30 Minutes, Medium
PROBLEM 15.1A
CRACKLE COOKIE COMPANY
a.
kr 31,325
c.
Profit if sold in the U.S.:
Total sales revenue in Danish kroner ($5,200 × 6.024 kroner/dollar*)
Large fluctuations in exchange rates can affect the level of realized profits. Although the
original estimates show a loss is expected from exporting to Great Britain, a substantial
kr 24,349
Materials and labor costs
Shipping costs in kroner ($3,000 × 6.024 kroner/dollar)
Misc. costs in kroner ($400 × 6.024 kroner/dollar)
Total sales revenue in Danish kroner (2,800 pounds × 8.696 kroner/pound*)
Materials and labor costs
Shipping costs in kroner ($2,000 × 6.024 kroner/dollar)
Misc. costs in kroner (480 pounds × 8.696 kroner/pound)
Profit in kroner
25 Minutes, Easy
PROBLEM 15.2A
GLOBAL MOTORS
a.
Nov 12 Inventory 2,572,000
Dec 31 Loss on Fluctuations in Foreign Exchange Rates 4,000
Accounts Payable (Stockholm Motors) 4,000
To adjust balance of sk20,000,000 account payable
to amount indicated by year-end exchange rate:
Original account balance 2,572,000$
Adjusted balance
Jan 11 Accounts Payable (Stockholm Motors) 2,576,000
Cash 2,566,800
Gain on Fluctuations in Foreign Exchange Rates 9,200
To record payment of sk20,000,000 account
to Stockholm Motors and to recognize gain from
fall in exchange rate since Dec. 31:
Account payable, adjusted balance 2,576,000$
b.
c.
General Journal
Computation of exchange rate on Jan. 11:
On November 12, Global Motors could have purchased 60-day future contracts on 20
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).
30 Minutes, Strong
GLOBAL PRODUCTS, INC.
a.
d.
PROBLEM 15.3A
The bonus calculation based on Mexican pesos pretax income is MXN 4,000,000 x 15% =
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:
40 Minutes, Medium PROBLEM 15.4A
THE ULSA COMPANY
a.
Sales revenue per unit 645.00 Ringgits 70.00 Liri
b. Profit per unit in dollars
c.
Total profit in dollars
Malaysia
Malta
Cost of components (215.00) (20.00)
Import duties (.05 × 215; .15 × 20) (10.75) (3.00)
Assembly costs (200.00) (25.00)
Pretax profit per unit 219.25 22.00
Income tax per unit (20%; 10%) (43.85) (2.20)
Profit per unit 175.40 Ringgits 19.80 Liri
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