Reading 26- LOS e ～ Q1－6 black, class

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1．A U.S. company has a subsidiary based in Malaysia, which has the following income statement for 2006 and balance sheets for 2005 and 2006 (in million Ringgit).

Sales	1,000
Cost of goods sold	600
Depreciation	80
Operating expenses	120
Earnings before taxes	200
Taxes	60
Net income	140
Dividends	20

 

	2005	2006
Cash	50	60
Accounts receivables	100	110
Inventories	100	110
Other current assets	100	110
Gross PP&E	700	800
Less accumulated depreciation	70	150
Net PP&E	630	650
Other fixed assets	20	40
Total assets	1,000	1,080
Account payable	70	80
Current portion of LTD	100	100
Notes payable	100	150
Other current liabilities	30	30
Long-term debt	300	200
Common stock	100	100
Paid in capital	50	50
Retained earnings	250	370

The value of the Ringgit at various times over the past two years is as follows:

January 1, 2005	$0.37
April 1, 2005	$0.38
December 31, 2005	$0.40
June 30, 2006	$0.47
December 31, 2006	$0.50
Average for 2005	$0.39
Average for 2006	$0.45

The common stock and long-term debt were originally issued in January of 2005. The fixed assets and first inventory purchases were made in April of 2005. Additional fixed asset purchases were made in June 2006. Inventory is measured using the FIFO method. It can be assumed that all of the ending inventory was acquired in June when the last major purchase was made. The operations of the subsidiary are independent from the operations of the U.S. parent. Inflation over the past three years has averaged 15 percent per year.

The amount of 2006 cost of goods sold in USD is (note: if needed, use $0.40 as the rate to convert 2005 ending inventory):

A)   $300,000,000.

B)   $262,800,000.

C)   $284,800,000.

D)   $270,000,000.

 

2．The value of December 31, 2006, gross property, plant, and equipment reported in USD is:

A)   $304,000,000.

B)   $313,000,000.

C)   $318,000,000.

D)   $400,000,000.

 

3．The amount of 2006 depreciation expense in USD is:

A)   $30,400,000.

B)   $40,000,000.

C)   $36,000,000.

D)   $31,300,000.

 

4．The value of December 31, 2006, inventory reported in USD is:

A)   $51,700,000.

B)   $49,500,000.

C)   $44,000,000.

D)   $55,000,000.

 

5．The value of all financing debt (notes payable, current portion of long-term debt, and long-term debt) on December 31, 2006, reported in USD is:

A)   $171,000,000.

B)   $189,000,000.

C)   $202,500,000.

D)   $225,000,000.

 

6．The combined value of the common stock and paid in capital on December 31, 2006, reported in USD is:

A)   $75,000,000.

B)   $55,500,000.

C)   $57,500,000.

D)   $63,000,000.

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1．A U.S. company has a subsidiary based in Malaysia, which has the following income statement for 2006 and balance sheets for 2005 and 2006 (in million Ringgit).

Sales	1,000
Cost of goods sold	600
Depreciation	80
Operating expenses	120
Earnings before taxes	200
Taxes	60
Net income	140
Dividends	20

 

	2005	2006
Cash	50	60
Accounts receivables	100	110
Inventories	100	110
Other current assets	100	110
Gross PP&E	700	800
Less accumulated depreciation	70	150
Net PP&E	630	650
Other fixed assets	20	40
Total assets	1,000	1,080
Account payable	70	80
Current portion of LTD	100	100
Notes payable	100	150
Other current liabilities	30	30
Long-term debt	300	200
Common stock	100	100
Paid in capital	50	50
Retained earnings	250	370

The value of the Ringgit at various times over the past two years is as follows:

January 1, 2005	$0.37
April 1, 2005	$0.38
December 31, 2005	$0.40
June 30, 2006	$0.47
December 31, 2006	$0.50
Average for 2005	$0.39
Average for 2006	$0.45

The common stock and long-term debt were originally issued in January of 2005. The fixed assets and first inventory purchases were made in April of 2005. Additional fixed asset purchases were made in June 2006. Inventory is measured using the FIFO method. It can be assumed that all of the ending inventory was acquired in June when the last major purchase was made. The operations of the subsidiary are independent from the operations of the U.S. parent. Inflation over the past three years has averaged 15 percent per year.

The amount of 2006 cost of goods sold in USD is (note: if needed, use $0.40 as the rate to convert 2005 ending inventory):

A)   $300,000,000.

B)   $262,800,000.

C)   $284,800,000.

D)   $270,000,000.

The correct answer was D)

Because the operations are independent from the parent, the all-current method will be used. Cost of goods sold should be accounted for at the average rate for the past year. The amount of cost of goods sold is 0.45 × 600,000,000 = 270,000,000.

2．The value of December 31, 2006, gross property, plant, and equipment reported in USD is:

A)   $304,000,000.

B)   $313,000,000.

C)   $318,000,000.

D)   $400,000,000.

The correct answer was D)

Because the operations are independent from the parent, the all-current method will be used. Fixed assets should be accounted for at the current rate. The value is 0.5 × 800,000,000 = 400,000,000.

3．The amount of 2006 depreciation expense in USD is:

A)   $30,400,000.

B)   $40,000,000.

C)   $36,000,000.

D)   $31,300,000.

The correct answer was C)

Because the operations are independent from the parent, the all-current method will be used. Depreciation should be accounted for at the average rate for the past year. The amount of depreciation is 0.45 × 80,000,000 = 36,000,000.

4．The value of December 31, 2006, inventory reported in USD is:

A)   $51,700,000.

B)   $49,500,000.

C)   $44,000,000.

D)   $55,000,000.

The correct answer was D)

Because the operations are independent from the parent, the all-current method will be used. Inventory should be accounted for at the current rate. The value is 0.50 × 110,000,000 = 55,000,000.

5．The value of all financing debt (notes payable, current portion of long-term debt, and long-term debt) on December 31, 2006, reported in USD is:

A)   $171,000,000.

B)   $189,000,000.

C)   $202,500,000.

D)   $225,000,000.

The correct answer was D)

Because the operations are independent from the parent, the all-current method will be used. All debt is considered a monetary liability and should be accounted for at the current rate. The value is 0.50 × 450,000,000 = 225,000,000.

6．The combined value of the common stock and paid in capital on December 31, 2006, reported in USD is:

A)   $75,000,000.

B)   $55,500,000.

C)   $57,500,000.

D)   $63,000,000.

The correct answer was B)

Because the operations are independent from the parent, the all-current method will be used. Common stock should be accounted for at the historical rate—the rate in effect when it was issued. The value is 0.37 × 150,000,000 = 55,500,000.