Zugar Company is domiciled in a country whose currency is the dinar. Zugar begins 2017 with three assets: cash of 27,200 dinars, accounts receivable of 81,800 dinars, and land that cost 218,000 dinars when acquired on April 1, 2016. On January 1, 2017, Zugar has a 168,000 dinar note payable, and no other liabilities. On May 1, 2017, Zugar renders services to a customer for 138,000 dinars, which was immediately paid in cash. On June 1, 2017, Zugar incurred a 118,000 dinar operating expense, which was immediately paid in cash. No other transactions occurred during the year. Currency exchange rates for 1 dinar follow:

April 1, 2016 $0.51 = 1 dinar

January 1, 2017 0.54 = 1

May 1, 2017 0.55 = 1

June 1, 2017 0.57 = 1

December 31, 2017 0.59 = 1

A. Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the dinar is the subsidiary’s functional currency. What is the translation adjustment for this subsidiary for the year 2017?

B. Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the U.S. dollar is the subsidiary’s functional currency. What is the remeasurement gain or loss for 2017?

C. Assume that Zugar is a foreign subsidiary of a U.S. multinational company. On the December 31, 2017, balance sheet, what is the translated value of the Land account? On the December 31, 2017, balance sheet, what is the remeasured value of the Land account?

Zugar Company is domiciled in a country whose currency is the dinar. Zugar begins 2017 with three assets: cash of 26,800 dinars, accounts receivable of 81,700 dinars, and land that cost 217,000 dinars when acquired on April 1, 2016. On January 1, 2017, Zugar has a 167,000 dinar note payable, and no other liabilities. On May 1, 2017, Zugar renders services to a customer for 137,000 dinars, which was immediately paid in cash. On June 1, 2017, Zugar incurred a 117,000 dinar operating expense, which was immediately paid in cash. No other transactions occurred during the year. Currency exchange rates for 1 dinar follow:

Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the dinar is the subsidiary’s functional currency. What is the translation adjustment for this subsidiary for the year 2017?

Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the U.S. dollar is the subsidiary’s functional currency. What is the remeasurement gain or loss for 2017?

Assume that Zugar is a foreign subsidiary of a U.S. multinational company. On the December 31, 2017, balance sheet, what is the translated value of the Land account? On the December 31, 2017, balance sheet, what is the remeasured value of the Land account?

Zugar Company is domiciled in a country whose currency is the dinar. Zugar begins 2017 with three assets: cash of 25,800 dinars, accounts receivable of 81,500 dinars, and land that cost 215,000 dinars when acquired on April 1, 2016. On January 1, 2017, Zugar has a 165,000 dinar note payable, and no other liabilities. On May 1, 2017, Zugar renders services to a customer for 135,000 dinars, which was immediately paid in cash. On June 1, 2017, Zugar incurred a 115,000 dinar operating expense, which was immediately paid in cash. No other transactions occurred during the year. Currency exchange rates for 1 dinar follow:

1. Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the dinar is the subsidiary’s functional currency. What is the translation adjustment for this subsidiary for the year 2017?

2. Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the U.S. dollar is the subsidiary’s functional currency. What is the remeasurement gain or loss for 2017?

3. Assume that Zugar is a foreign subsidiary of a U.S. multinational company. On the December 31, 2017, balance sheet, what is the translated value of the Land account? On the December 31, 2017, balance sheet, what is the remeasured value of the Land account?

(Input all amounts as positive.)

Zugar Company is domiciled in a country whose currency is the dinar. Zugar begins 2017 with three assets: cash of 22,000 dinars, accounts receivable of 80,800 dinars, and land that cost 208,000 dinars when acquired on April 1, 2016. On January 1, 2017, Zugar has a 158,000 dinar notes payable, and no other liabilities. On May 1, 2017, Zugar renders services to a customer for 128,000 dinars, which was immediately paid in cash. On June 1, 2017, Zugar incurred a 108,000 dinar operating expense, which was immediately paid in cash. No other transactions occurred during the year. Currency exchange rates for 1 dinar follow:

1. Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the dinar is the subsidiary’s functional currency. What is the translation adjustment for the subsidiary of the year 2017?
2. Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the U.S. dollar is the subsidiary’s functional currency. What is the remeasurement gain or loss for 2017?
3. Assume that Zugar is a foreign subsidiary of a U.S. multinational company. On the December 31, 2017 balance sheet, what is the translated value of the Land account? On the December 31, 2017 balance sheet, what is the remeasured value of the land

Meredith’s currently makes $6,000 a month and is considering enrolling in a full-time MBA program that will require her to leave her job. In addition, the MBA program will cost $2,000 a month.

Q: The explicit cost of attending the MBA program is ___ per month.

Q: The implicit cost of attending the MBA program is ___ per month.

Q: The opportunity cost of attending the MBA program is ___ per month.

In early 2001, Ride Along Corporation (Ride Along or the “Company”), a domestic company that does not meet the definition of a public business entity, began manufacturing and selling bicycles to retail stores nationally. Ride Along’s fiscal year ends on December 31, and it has been experiencing growth over the past decade. Ride Along is required to prepare and issue annual consolidated financial statements to its shareholders and the local bank. These financial statements are to be prepared in accordance with U.S. GAAP. Ride Along is 75 percent owned by a private equity firm and 25 percent owned by its founder. The founder and private equity firm plan to either take Ride Along public in an initial public offering (IPO) or sell it to an existing public company in five years. Ride Along tests goodwill for impairment annually on November 30 and has determined that each of its goodwill reporting units is a legal entity. On February 1, 2012, Ride Along acquired 100 percent ownership of a bicycle tire manufacturer, Mini Tires Company (Mini). The purposes of the acquisition were to reduce the cost associated with buying bicycle tires from third-party suppliers and for Ride Along to expand its operations by selling tires directly to retail stores. Mini met the definition of a business1 but did not meet the definition of a public business entity (PBE). The founder of Mini will work as an employee of Ride Along and has signed a two-year noncompete agreement. Ride Along paid cash of $20 million (purchase price), which resulted in goodwill of $6 million and an intangible asset (a customer list) of $2 million. During 2013, Ride Along continued to gain market share in the bicycle industry and determined it wanted to own retail stores. On June 1, 2013, Ride Along acquired 100 percent ownership of 10 independently owned retail stores and recorded $10 million of goodwill as part of the acquisitions. In January 2014, the FASB issued ASU 2014-02, Intangibles — Goodwill and Other (Topic 350): Accounting for Goodwill — a consensus of the Private Company Council. During 2014, the founder of Mini resigned from Ride Along and started a new business after his noncompete agreement expired. With his departure, 45 percent of the customers on Mini’s original customer list, which was classified as an intangible asset on Ride Along’s statement of financial condition, provided notice that they would no longer do business with Ride Along. This migration resulted in an impairment of the customer list intangible. These customers represent 35 percent of total future revenue for the Tire reporting unit and the loss of these customers reduced the fair value of Mini by 35 percent. No other management changes are expected. Even with the loss of Mini’s customers, Ride Along performed well because of the strength of the retail stores and strong bicycle sales leading to results that exceeded expectations. Therefore, Ride Along increased its revenue and operating income in its five-year forecast; cash flows continue to be positive.

Furthermore, general economic conditions are stable for all reporting units, including debt and equity markets. Ride Along is a private company that does not actively trade its shares; however, because of stable economic conditions and the Company’s increasing revenue and operating income, had Ride Along traded its shares, the value of these shares would have steadily increased. Labor costs and material for each reporting unit have increased in line with inflation and are expected to do so for the foreseeable future. As of December 31, 2014, before considering the departure of Mini’s founder, the fair value of Ride Along was $210 million (fair value by reporting unit is as follows: Bicycle, Tire, and Retail stores were 55 percent, 10 percent, and 35 percent, respectively) and the carrying value, including goodwill, was $145 million (carrying value by reporting unit is as follows: Bicycle, Tire, and Retail stores were $65 million, $20 million, and $60 million, respectively). Required 1. ASU 2014-02 is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. What should Ride Along consider before deciding whether to adopt the private-company alternative in ASU 2014-02? 2. Assuming Ride Along adopts the goodwill alternative in ASU 2014-02, may Ride Along subsequently change its accounting for goodwill and revert to PBE GAAP? If so, how would Ride Along account for this change and what disclosures must it include in the consolidated financial statements? For the questions below, assume Ride Along early adopted ASU 2014-02 in 2014. 3. For the year ended December 31, 2014, describe (in detail) the analysis that Ride Along would perform to support whether its goodwill is recoverable or impaired as well as the accounting conclusion reached assuming it elected to test goodwill at the entity level. If the Company concludes that its goodwill is impaired, what would it record as the amount of the goodwill impairment? In addition, provide a separate analysis and related accounting conclusion (including the amount of the goodwill impairment charge if goodwill is impaired) assuming Ride Along elected to test goodwill at the reporting unit level. 4. Assume Ride Along (or one of its reporting units) has zero or negative equity. How would Ride Along perform its goodwill impairment assessment?

Case 18-5 Ride Along

In early 2001, Ride Along Corporation (Ride Along or the “Company”), a domestic company that does not meet the definition of a public business entity, began manufacturing and selling bicycles to retail stores nationally. Ride Along’s fiscal year ends on December 31, and it has been experiencing growth over the past decade. Ride Along is required to prepare and issue annual consolidated financial statements to its shareholders and the local bank. These financial statements are to be prepared in accordance with U.S. GAAP. Ride Along is 75 percent owned by a private equity firm and 25 percent owned by its founder. The founder and private equity firm plan to either take Ride Along public in an initial public offering (IPO) or sell it to an existing public company in five years. Ride Along tests goodwill for impairment annually on November 30 and has determined that each of its goodwill reporting units is a legal entity.

On February 1, 2012, Ride Along acquired 100 percent ownership of a bicycle tire manufacturer, Mini Tires Company (Mini). The purposes of the acquisition were to reduce the cost associated with buying bicycle tires from third-party suppliers and for Ride Along to expand its operations by selling tires directly to retail stores. Mini met the definition of a business1 but did not meet the definition of a public business entity (PBE). The founder of Mini will work as an employee of Ride Along and has signed a two-year noncompete agreement. Ride Along paid cash of $20 million (purchase price), which resulted in goodwill of $6 million and an intangible asset (a customer list) of $2 million.

During 2013, Ride Along continued to gain market share in the bicycle industry and determined it wanted to own retail stores. On June 1, 2013, Ride Along acquired 100 percent ownership of 10 independently owned retail stores and recorded $10 million of goodwill as part of the acquisitions.

In January 2014, the FASB issued ASU 2014-02, Intangibles — Goodwill and Other (Topic 350): Accounting for Goodwill — a consensus of the Private Company Council.

During 2014, the founder of Mini resigned from Ride Along and started a new business after his noncompete agreement expired. With his departure, 45 percent of the customers on Mini’s original customer list, which was classified as an intangible asset on Ride Along’s statement of financial condition, provided notice that they would no longer do business with Ride Along. This migration resulted in an impairment of the customer list intangible. These customers represent 35 percent of total future revenue for the Tire reporting unit and the loss of these customers reduced the fair value of Mini by 35 percent. No other management changes are expected. Even with the loss of Mini’s customers, Ride Along performed well because of the strength of the retail stores and strong bicycle sales leading to results that exceeded expectations. Therefore, Ride Along increased its revenue and operating income in its five-year forecast; cash flows continue to be positive.

Furthermore, general economic conditions are stable for all reporting units, including debt and equity markets. Ride Along is a private company that does not actively trade its shares; however, because of stable economic conditions and the Company’s increasing revenue and operating income, had Ride Along traded its shares, the value of these shares would have steadily increased. Labor costs and material for each reporting unit have increased in line with inflation and are expected to do so for the foreseeable future.

As of December 31, 2014, before considering the departure of Mini’s founder, the fair value of Ride Along was $210 million (fair value by reporting unit is as follows: Bicycle, Tire, and Retail stores were 55 percent, 10 percent, and 35 percent, respectively) and the carrying value, including goodwill, was $145 million (carrying value by reporting unit is as follows: Bicycle, Tire, and Retail stores were $65 million, $20 million, and $60 million, respectively).

Required

1. ASU 2014-02 is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. What should Ride Along consider before deciding whether to adopt the private-company alternative in ASU 2014-02?

2. Assuming Ride Along adopts the goodwill alternative in ASU 2014-02, may Ride Along subsequently change its accounting for goodwill and revert to PBE GAAP? If so, how would Ride Along account for this change and what disclosures must it include in the consolidated financial statements?

For the questions below, assume Ride Along early adopted ASU 2014-02 in 2014.

3. For the year ended December 31, 2014, describe (in detail) the analysis that Ride Along would perform to support whether its goodwill is recoverable or impaired as well as the accounting conclusion reached assuming it elected to test goodwill at the entity level. If the Company concludes that its goodwill is impaired, what would it record as the amount of the goodwill impairment? In addition, provide a separate analysis and related accounting conclusion (including the amount of the goodwill impairment charge if goodwill is impaired) assuming Ride Along elected to test goodwill at the reporting unit level.

4. Assume Ride Along (or one of its reporting units) has zero or negative equity. How would Ride Along perform its goodwill impairment assessment?

There is a hotel in Imatra (Finland) which is very close to Russian border. The
demand function of Finnish consumers for this hotel is Q = 1000 - P. The demand
function of Russian consumers for this hotel would be Q = 1400 - P if they had not
travel to Imatra, but they have to travel and cost of travelling is 200. MC of hotel is
200 for one visitor. Find the difference of profits with price discrimination and without
price discrimination.

You are the Director of Global Compliance for a U.S. company that just created a revolutionary new portable personal computer (PPC) that is half the size of a laptop, performs the same functions as existing laptop computers but costs only half as much to manufacture. Several patents were filed and approved protect the unique design of this computer. Your CEO asked you to formulate a recommendation for how to expand into South America. Evaluate the pros and cons if you were to license a South American firm to manufacture and market the computer in South America

Case One:

On December 31, 2020, book value of patent is 6 millions. Undiscounted sum of future cash flows of patent is 10 millions, fair value of patent is 3 millions.

Determine the amount of any impairment loss to be recorded, if any.

(Please explain in detailes why book value is compared with the Undiscounted sum of future cash flows.)

Case Two:

Apple company acquired Banana Corporation for 60 millions on January 1st, 2020. In addition, he fair value of Goodwill is 10 millions.

An indicator is present signaling possible impairment in the end of 2020.

On December 31, 2020,

Fair value of Banana Corporation: 45million

Fair value of Banana Corporation (excluding goodwill): 39 million

Book value of Banana Corporation (including goodwill): 47 million

Determine the amount of any impairment loss to be recorded, if any.