Question

Taft Corporation operates primarily in the United States. However, a few years ago, it opened a plant in Spain to produce merchandise to sell there. This foreign operation has been so successful that during the past 24 months the company started a manufacturing plant in Italy and another in Greece. Financial information for each of these facilities follows:

	Spain				Italy				Greece
Sales	$	213,000			$	636,000			$	486,000
Intersegment transfers		0				102,400				96,000
Operating expenses		208,000				242,000				226,000
Interest expense		28,000				41,000				31,000
Income taxes		79,000				31,000				46,000
Long-lived assets		126,000				186,000				136,000

The company’s domestic (U.S.) operations reported the following information for the current year:

Sales to unaffiliated customers	$	4,620,000
Intersegment transfers		487,000
Operating expenses		2,470,000
Interest expense		172,000
Income taxes		879,000
Long-lived assets		2,260,000

Taft has adopted the following criteria for determining the materiality of an individual foreign country:

a. Calculate sales to unaffiliated customers within a country and as a percent of the consolidated sales.

b. Calculate long-lived assets within a country and as a percentage of the long-lived assets.

c. Apply Taft’s materiality tests to identify the countries which are 10 percent or more of consolidated sales or consolidated long-lived assets to be reported separately.

Answer 1

Answer

A

sales to unaffiliated customers within a country and as a percent of the consolidated sales:

Revenue Test (Sales to Unaffiliated Parties):

United States	4,620,000	4,620,000/5,955,000*100	77.58%
Spain	213,000	213,000/5,955,000*100	3.58%
Italy	636,000	636,000/5,955,000*100	10.68%
Greece	486,000	486,000/5,955,000*100	8.16%
Total	5955000		100%

B.

long-lived assets within a country and as a percentage of the long-lived assets:

Long-lived Asset Test:

United States	2,260,000	2,260,000/2,708,000*100	83.46%
Spain	126,000	126,000/2,708,000*100	4.65%
Italy	186,000	186,000/2,708,000*100	6.87%
Greece	136,000	136,000/2,708,000*100	5.02%
Total	2,708,000		100%

C.

Apply Taft’s materiality tests to identify the countries which are 10 percent or more of consolidated sales or consolidated long-lived assets to be reported separately:

Individual Foreign Countries does not Accept the Revenue or Long Lived Assets Materiality Tests, So Foreign Country Must be Reported Separately.

In the Problem, the information must be Separately Presented for the United States, but it is Combined for all Other Countries.