Question

In: Accounting

1. Colper Grant is the president of Acme Brush of Brazil, the whole owned Braziliain Subsidiary...

1. Colper Grant is the president of Acme Brush of Brazil, the whole owned

Braziliain Subsidiary of US based Acme Brush Inc. Cooper Grant's compensation

package consists of a combination of salary and bonus. His annual bonus

is calculated as a predetermined percentage of the pre-tax annual income

earned by Acme Brush of Brazil. A condensed income statement for Acme

Brush of Brazil for the most recent year is as follows (amounts in

thousands of Brazilian reals (BRL)):

BRL

Sales 10,000

Expenses 9,500

Pre-tax income 500

After translating the Brazilian real income statement to the US dollars, the

condensed income statement for Acme Brush of Brazil appears as follows

(amounts in thousand of US Dollars (USD):

Sales 3,000

Expenses 3,300

Pre-tax loss -300

A. Explain how Acme Brush of Brazil's pre-tax income in BRL becamea US

dollar pretax loss. In order to receive the full credit, you are required

to show all steps in calculation.

B. Discuss whether Cooper Grant should be paid a bonus or not.

Expert Solution

Hey,

Acme Brush is a Brazil-based Company doing its business in local currency (BRL). Our Local currency is US$. As this company is our subsidiary we need to consolidate its financial statements with our financial statements. In order to consolidate its financial statement, we need to translate Acme Brush's Financial statements into the Dollar amount. so when we translate due to changes in foreign currency Exchange rate this situation may occur. Translation of Income statement items is done using Spot Rate on the date of the transaction.

Sales would have been done when the exchange rate would have been 0.3 per BRL (3000/10000)

Expenses would have been done when the exchange rate would have been 0.35 Per BRL (3300/9500)

Bonus Was Payable on the Pre Tax Income Earned by Acme Brush, Company is Brazil Based company and it has earned Profit on individual Bases. Consolidation is done to show the combined picture of the Performance of the company as a whole, it is just for information to investors Holding Company. Consolidation does not affect individual performance of respective companies. Thus Bonus shall be payable to Cooper Grant by Acme Brush.

ekkarill92 answered 1 year ago

AmTec is considering to set up a subsidiary in Brazil. The initial investment is $1 million....

AmTec is considering to set up a subsidiary in Brazil. The initial investment is $1 million. If the project is undertaken, AmTec needs to determine the project feasibility for its four years operation there. Due to political uncertainly and great financial opportunity, AmTec’s cost of capital is 6%, and Brazil’s country risk premium 5%. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows...

Ahmad company (the 80%-owned subsidiary); in 1/5/2018 sold land to Fatima Company (the subsidiary) at selling...

Ahmad company (the 80%-owned subsidiary); in 1/5/2018 sold land to Fatima Company (the subsidiary) at selling price $125,000, the cost of land $100,000. During 2020, Fatima Company sold the land at $140,000. Net income for Fatima Company as follows: 2018 2019 2020 Net Profit 80,000 100,000 60,000 Instructions: 1. Journalize the above transactions in Parent Company records and in the Subsidiary Company records. 2. Calculate the Parent company from the subsidiary’s net income? 3. Calculate the Minority interest from the...

ABC is a United States company that has a manufacturing subsidiary in Brazil. There have been...

ABC is a United States company that has a manufacturing subsidiary in Brazil. There have been large changes in the USD/BRL exchange rate over the last 5 years and the company has forecasted the following possible exchange rates and subsidiary values over the next year: Probability USD/BRL Value (BRL) Value ($) State 1 .2 $1 = 2.93 BRL 60,000,000 20,477,816 State 2 .2 $1 = 3.24 BRL 55,000,000 16,975,309 State 3 .2 $1 = 3.35 BRL 52,000,000 15,522,388 State 4...

QUESTION 1 Rockwater, a wholly owned subsidiary of Brown & Bread, a global engineering and construction...

QUESTION 1 Rockwater, a wholly owned subsidiary of Brown & Bread, a global engineering and construction company, is a worldwide leader in underwater engineering and construction. Norman Chambers, hired as CEO in late 2019, knew that the industry’s competitive world had changed dramatically. “In the 1990s, we were a bunch of guys in wet suits diving off barges into the North Sea with burning torches,” Chambers said. But competition in the subsea contracting business had become keener in the 2000s,...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $210,000 in...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $210,000 in cash. The equipment had originally cost $189,000 but had a book value of only $115,500 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense is computed using the straight-line method. Ackerman reported $310,000 in net income in 2018 (not including any investment income) while Brannigan reported $101,300. Ackerman attributed any excess acquisition-date fair value to Brannigan's unpatented technology, which...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $330,000 in...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $330,000 in cash. The equipment had originally cost $297,000 but had a book value of only $181,500 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense is computed using the straight-line method. Ackerman reported $430,000 in net income in 2018 (not including any investment income) while Brannigan reported $140,900. Ackerman attributed any excess acquisition-date fair value to Brannigan's unpatented technology, which...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $190,000 in...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $190,000 in cash. The equipment had originally cost $171,000 but had a book value of only $104,500 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense is computed using the straight-line method. Ackerman reported $470,000 in net income in 2018 (not including any investment income) while Brannigan reported $154,100. Ackerman attributed any excess acquisition-date fair value to Brannigan's unpatented technology, which...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $250,000 in...

On January 1, 2018, Ackerman sold equipment to Brannigan (a wholly owned subsidiary) for $250,000 in cash. The equipment had originally cost $225,000 but had a book value of only $137,500 when transferred. On that date, the equipment had a five-year remaining life. Depreciation expense is computed using the straight-line method. Ackerman reported $350,000 in net income in 2018 (not including any investment income) while Brannigan reported $114,500. Ackerman attributed any excess acquisition-date fair value to Brannigan's unpatented technology, which...

Larkin Hydraulics. On May 1, Larkin Hydraulics, a wholly owned subsidiary of Caterpillar (U.S.), sold a...

Larkin Hydraulics. On May 1, Larkin Hydraulics, a wholly owned subsidiary of Caterpillar (U.S.), sold a 12-megawatt compression turbine to RebeckeTerwilleger Company of the Netherlands for €4,000,000, payable as €2,000,000 on August 1 and €2,000,000 on November 1. Larkin derived its price quote of €4,000,000 on April 1 by dividing its normal U.S. dollar sales price of $4.320,000 by the then current spot rate of $1.0800/€. By the time the order was received and booked on May 1, the euro...

Santa Corporation is 90 percent owned subsidiary of Panta Corporation, acquired by Panta on January 1,...

Santa Corporation is 90 percent owned subsidiary of Panta Corporation, acquired by Panta on January 1, 20X1 for $270,000 when Santa’s common stock and retained earnings were $100,000 and $150,000 respectively. All book values of Santa’s assets and liabilities were equal to their fair values except unrecorded patent which its fair value is equal the differential value with remaining life of 10 years. Both firms are using FIFO method of inventory. Followings are the transactions of merchandize between these two...