ADVANCE ACCOUNTING

Problem 1

On October 15, our company has executed a purchase order for new equipment to be purchased from a supplier in Denmark for a purchase price of DKK 1.2 million. The equipment is deliverable on March 31. In order to hedge the commitment to pay DKK1.2 million, we enter into a forward exchange contract on October 15 to receive DKK1.8 million on March 31 at an exchange rate of $0.17: DKK1. Assume the following exchange gates:

Date	Spot Rates	Forward Rates
October 15	$0.15:DKK1	$0.17:DKK1
December 31	$0.16:DKK1	$0.18:DKK1
March 31	$0.20:DKK1	n/a

Required: Prepare the journal entries to record the following:

· Execution of the purchase order and forward contract

· Adjusting entries at December 31

· Receipt of equipment and payment to equipment supplier on March 31.

Problem 2

Blanton Corporation is comprised of five operating segments. Information about each of these segments is as follows (in thousands):

	Linens		Kitchen		Grocery		Furniture		Stationery
Sales to outsiders	$	47			$	253			$	22			$	61			$	14
Intersegment transfers		2				13				7				15				12
Interest revenue - outsiders		1				-				2				4				-
Interest revenue - intersegment		-				3				-				-				11
Operating expenses - outsiders		58				207				20				51				13
Operating expenses - intersegment		1				10				3				8				11
Interest expense		-				6				-				1				-
Income taxes		(2	)			5				2				3				12
Tangible assets		9				58				9				6				4
Intangible assets		-				-				2				4				-
Intersegment loans		4				3				-				-				-

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Required:

A) Which operating segments are reportable under the revenue test?

B) What is the total amount of revenues in applying the revenue test?

C) Which operating segments are reportable under the profit or loss test?

D) In applying the profit or loss test, what is the minimum amount an operating segment must have in order to meet the profit or loss test for a reportable segment?

E) Which operating segments are reportable under the asset test?

F) In applying the asset test, what is the minimum amount an operating segment must have in order to meet the asset test for a reportable segment?

G) Which operating segments are reportable?

H) According to the test results for reportable segments, is there a sufficient number of reported segments or should any additional segments also be disclosed? Explain the reason for your conclusion.

Problem 3

Assume that our company owns a subsidiary operating in Switzerland. The subsidiary has adopted the Swiss Franc (CHF) as its functional currency. Our company operates this subsidiary like a division or branch office, making all of its operating decisions, including pricing its products. We conclude, therefore, that the functional currency of this subsidiary is the $US and that its financial statements must be remeasured prior to consolidation. Following are the subsidiary’s financial statements (in CHF) for the most recent year:

Income statement:
Sales	3,000,000
Cost of goods sold	-2,321,500
Gross profit	678,500
Operating expenses	-252,000
Depreciation	-225,000
Remeasurement gain or loss
Net income	201,500
Statement of retained earnings:
BOY retained earnings	1,506,500
Net income	201,500
Dividends	-75,000
Ending retained earnings	1,633,000
Balance sheet:
Assets
Cash	850,000
Accounts receivable	1,273,300
Inventory	650,000
PPE, net	927,000
Total Assets	3,700,300
Liabilities and Stockholders’ Equity
Current Liabilities	250,000
Long-term Liabilities	1,097,300
Common Stock	220,000
APIC	500,000
Retained Earnings	1,633,000
Total Liabilities & Equity	3,700,300

Our subsidiary also reports the following additional financial statement information (in CHF):

Beginning inventory	450,000
Purchases	2,521,500
Ending inventory	-650,000
Cost of Goods Sold	2,321,500
Land	52,000
Building	750,000
Accumulated Depreciation—Building	-500,000
Equipment	1,250,000
Accumulated Depreciation—Equipment	-625,000
PPE, net	927,000
Depreciation expense—Building	100,000
Depreciation expense—Equipment	125,000
Depreciation expense	225,000

The relevant exchange rates for the $US value of the Swiss Franc (CHF) are as follows:

BOY Rate	$0.60
EOY rate	$0.80
Avg. rate	$0.70
Dividend rate	$0.77
Historical rates:
Beginning inventory	$0.60
Land	$0.35
Building	$0.35
Equipment	$0.45
Historical rate (Common Stock and APIC)	$0.20

Required: Remeasure the subsidiary’s income statement, statement of retained earnings, and balance sheet into $US for the current year (assume that the BOY Retained Earnings is $1,100,000).