Chapter 10, Problem 47QA

Case 3 ABC Corp, a public limited company, operates in the energy and power sector. The company has experienced significant growth in recent years and has expanded its operation internationally by the acquisition of overseas subsidiaries. Group policy is to translate the financial statements of these subsidiaries using the closing rate method with goodwill calculated at the rate of exchange ruling at the date of acquisition.One of these subsidiaries, XYZ, is incorporated in a country that is suffering from a very high inflation (120% over the last 3 years) as a result of political and economic problems. Additionally, it is difficult to repatriate funds from the country. ABC Corp owned 91% of the shares of XYZ, with the foreign government owning the balance. Most of the products produced by XYZ are sold locally, but approximately 10 % of the product sold at cost to ABC. Because of a dispute XYZ has created a provision for doubtful debt against an intercompany amount owing from ABC. As a…

1. ForCo, a corporation that is incorporated in a foreign country that does not have a treaty with the United States, plans to conduct manufacturing, marketing, and sales operations in the United States.  These U.S. operations produce $5 million of earnings & profits in Year 1.  Assume further that the U.S. operations will have a net worth of $17 million at the beginning of Year 1 and $20 million at the end of Year 1.  During Year 2, the U.S. branch does not produce any earnings & profits and its net worth is $20 million at the beginning of the year and $10 million at the end of the year.  For branch profits tax purposes in Year 1, the dividend equivalent amount (“DEA”) for the U.S. branch is as follows: a. $1.5 million. b. $2.0 million c. $10 million. $20 million. d. $25 million. 2. For branch profits tax purposes in Year 2, the DEA for the U.S. branch is as follows: a. $2 million. b. $3 million. c. $10 million. d. $20 million. e. $25 million.…

Accounting for Business Combinations:  ABC Company, a Philippine company, holds a 70% interest in Honesty Company, a Japanese Company. This ownership interest was acquired when Honesty was initially incorporated. The trial balance of Honesty at December 31, 2022 is as follows (see image below).The beginning inventory was 70,000 yen. The ordinary shares were issued four years ago when the exchange rate was P0.35, same with the plant and equipment. The weighted average exchange rate for 2022 was P0.53. The translated amount of retained earnings beginning was P22,500. The spot rate for the yen in various dates was: January 1, 2022 - P0.48 and December 31, 2022 - P0.58. Apply the current rate method. Answer the following subquestion:  a. How much is the Cumulative Translation Adjustment at December 31, 2022? b. How much is Translated Amount of Assets? c. How much is Translated Amount of Net Income? _____________