Question

1. On October 2,20x4, Duck corporation borrowed 150,000 British pounds from a London bank, evidenced by an interest-bearing note payable due in one year. the note is payable in pounds. Exchange rates for pounds are: October 2,20x4 $1.60; December 31,20x4 $1.62; October 2,20x5 1.56.

What is the final amount of the loan payable that Duck showed on its books, in dollars, just before it repaid the loan?

2. Operating income and tax rates for C.J Company's first three years of operations were as follows:

	income	Enacted Tax Rates
2010	$100,000	35%
2011	($250,000)	30%
2012	$420,000	40%

Assuming that CJ Company opts to carryback its 2011 NOL, what is the amount of income tax payable at December 31, 2012?

Answer 1

Sol. (1). The loan amount is 150,000 British pounds.

The exchange rates for October 2,20x4, December 31,20x4 and October 2,20x5 are $1.60, $1.62 and $1.56 respectively.

Calculate the amount payable on October 2,20x4 by multiplying the exchange rate of $1.60 with the amount borrowed of $150,000.

Calculate the amount payable on December 31,20x4 by multiplying the exchange rate of $1.62 with the amount borrowed of $150,000.

  

  

.

Determine the final loan amount payable by adding the amount payable on October 2,20x4 and December 31, 20X4 of $40,000 and $202,500.

  

The exchange Rate of October 2,20x5 will not be taken because the final amount will be payable on October 2,20x5.

Sol. (2) The operating income of 2010 and 2012 are $100,000 and $420,000.

The operating loss of 2011 are $250,000.

Compute the adjusted operating income by deducting operating loss of 2011 which is $250,000 from operating income of 2012 which is $420,000.

  

  

Tax amount on December 31,2012 is calculated by multiplying the adjusted operating income of 170,000 with the tax rate of 40%.

  

  

Operating loss is deducted because the company opts to carry back its 2011 NOL in 2012.