Case of Antidumping in Action Study

A GAME OF CHICKEN

When it comes to chicken, Americans prefer white meat. South Africans prefer dark meat. Sounds like the basis for mutually beneficial trade. And it would be, if it weren't for those pesky dumping laws.

U.S. chicken producers noticed the differences in demand. They began exporting dark-meat chicken to South Africa. This created extra competition for South African chicken producers, but South African consumers gained more than local producers lost. That's the way trade works. In addition, U.S. chicken producers were happy. The price they received for their dark-meat exports was somewhat higher than the price they could get in the United States. This added to their profitability.

South African chicken producers scratched back. They charged U.S. producers with dumping by exporting dark-meat chicken at a price less than production cost. This is an ideal situation for a biased antidumping authority because there is no one way to determine this production cost. (What comes first, the dark meat or the white?) In 2000, the South African government determined that the U.S. firm Tyson was dumping by a margin of 200 percent (its export price was only one-third of its estimated production cost) and Gold Kiss was dumping by an incredible 357 percent margin. Something is fowl in South Africa. Good-bye gains from trade.

WHAT'S SO SUPER ABOUT SUPERCOMPUTERS?

In 1996 the Japanese company NEC won the contract to supply a supercomputer to a university consortium funded by the U.S. National Science Foundation, to be used for weather forecasting. This was the first-ever sale of a Japanese supercomputer to an agency of the U.S. government. It seemed to be a major setback for Cray Research, then the major U.S. supercomputer maker. But Cray thought it saw unfair trade.

With encouragement from the U.S. Depart-ment of Commerce, Cray filed a dumping complaint. NEC guessed that it was not likely to win with the Department of Commerce also acting as the judge, and it refused to participate in the case. Based on information provided by Cray, the U.S. government imposed antidumping duties on NEC supercomputers at the super rate of 454 percent (and at the almost super rate of 173 percent for supercomputers from Fujitsu, the other major Japanese producer). With these antidumping duties in place, no one in the United States would be buying NEC or Fujitsu supercomputers.

Not so super for U.S. users of supercomputers. Or for anyone in the United States who wanted accurate weather forecasts. NEC supercomputers were simply the best in the world for this purpose.

There's one more twist in this wired tale. Hey, maybe it isn't dumping after all. In 2001, Cray was in financial trouble, and its technology was lagging. In exchange for a $25 million investment by NEC and a 10-year contract to be the exclusive distributor of NEC supercomputers in North America, Cray asked the Department of Commerce to end the antidumping duty.

How do you compare the rationales for exercising anti-dumping sanctions in these two very different cases?

During the year ended 30 June 2020, Resources Ltd explored four different areas of interest and spent $102,700 in each. The results of E&E activities suggested that Areas A, B and C may contain mineral reserves so the company acquired leases over these three areas. The leases cost $151,000, $202,300 and $176,400 respectively.

During the year ended 30 June 2021, Resources Ltd commenced a drilling program to evaluate Areas A, B and C. Eight exploratory wells were drilled, five in Area A, two in Area B and one in Area C at a cost of $108,600 each. The five wells drilled in Area A did not result in any mineral resource findings (i.e. they were dry holes). The two wells drilled in Area B indicated that the company had discovered economically recoverable reserves. Management was uncertain about the likelihood of finding economically recoverable reserves for the well in Area C as some mineral reserves were found but not enough to be considered economically recoverable at this stage. Therefore, Resources Ltd decided to continue E&E activities in Area C as of 30 June 2021. Area A was abandoned, and, after incurring costs of $49,100 to confirm the technical feasibility and commercial viability of extracting the mineral resources, development of Area B commenced.

During the year ended 30 June 2022, to evaluate the area of interest further, three more wells were drilled in Area B. Of these, two were dry. Each well cost $148,000. The successful wells in Area B were developed for a total cost of $326,500. Expenditure on additional plant and equipment related to development was $349,400. After further dry wells costing $183,800 were drilled in Area C, management concluded that Area C did not contain any commercially viable quantities of mineral resources, so it was abandoned.

These costs are summarised as follows.

Determine what amounts would be recognised as an expense (in the profit or loss) versus capitalised as an asset, in relation to each area of interest for each financial year assuming Resources Ltd expenses all of its E&E costs as incurred.

Smooth Blend, Inc., a calendar year company, produces several blends of whiskey. Maturing whiskey is stored for 3 years in a large, dark aromatic warehouse owned by Smooth Blend. Smooth Blend sells the whiskey to Distributor Company at the beginning of the aging process (January 1, 2011). Distributor Company will pick up the whiskey at the end of the aging process (December 31, 2013) and take it to its facilities for bottling. Distributor Company pays the full purchase price to Smooth Blend on January 1, 2011 to protect itself against price increases. When should Smooth Blend recognize revenue? Why? Would your answer change If the quality control manager of Distributor Company had the right to taste the whiskey on December 31, 2013 and receive a full refund if not satisfied with the quality of the liquor? If there was no right of return but Smooth Blend promised to help Distributor Company attract customers? If Smooth Blend acquired a fixed price option from Distributor Company to repurchase the whiskey in 6 months?

Electronics Source Agency Ltd. was a manufacturers’ sales representative that operated branch offices in most major population centers across Canada. In 1995, the corporation hired Felix as its senior Sale Manager for a large metropolitan city, an important sales area of the corporation. At the time of hiring, Felix had advised the President of the corporation that he had extensive sales experience in the sale of electronics, and the previous year had incorporated his own corporation with a view to establishing an electronics sales agency similar to the President’s company, but had decided not to proceed with the project. Felix and the President had no further discussion of Felix’s corporation, and proceeded to negotiate a written agreement that provided Felix with an annual salary of $150,000 year. The agreement was for indefinite hiring, but provided that either the employer or Felix could terminate the agreement on 6 month’s notice. Felix was very successful in his position as Sales Manager of the Metropolitan office for his first year on the job, but during the second year, he discovered that a large U.S. electronic manufacturer was seeking a manufacturer’s representative for its products in Canada. Based on this information, Felix decided to contact the U.S. manufacturer with a view to becoming the manufacturer’s representative in Canada, not for his employer, but for his own corporation that was presently dormant. Using his employer’s computer, he prepared an extensive Power Point presentation, incorporating a great deal of market information concerning the Metropolitan sales area as well as the Canadian market as a whole. The presentation required a significant amount of time, and Felix remained home from work for a week on the pretence of being ill with the flu while he completed the presentation. When his presentation was ready for presentation to the U.S. Manufacturer, he contacted the company, and a date two weeks hence was set for his presentation. A week before the presentation was to be made, the President of Electronics Source Agency Ltd. was made aware of the intentions of Felix. Rather than confront Felix immediately, the President decided to wait and see if Felix would inform him of his intentions, but Felix did not, and the day before Felix was to make his presentation to the U.S. Manufacturer, the President confronted Felix, and demanded an explanation. Felix admitted that it was his intention to make the presentation on behalf of his own company, and explained that he intended to resign if the presentation was successful. The President then advised Felix that he was dismissed, effective immediately. Felix proceeded with his presentation to the U.S. Manufacturer, but it was unsuccessful. Felix then took legal action against his employer, claiming wrongful dismissal. Discuss the arguments that may be raised by Felix and Electronics Source Agency Ltd. Render a decision.

14. What are the highest tax rates for each of the following scenarios?

____. Operating income from a hotel earned by a foreign corporation (excluding branch profits tax)

____. Interest income earned by a foreign corporation from a US borrower

____. Net rental income earned by an U.S. individual (exclude the passthrough deduction)

____. Capital gain earned by an U.S. individual

____. Interest income earned by a U.S. corporation

____. Capital gain earned by an U.S. corporation

____. Depreciation recapture on the sale of U.S. real estate (Section 1250 property) for an individual

____. Depreciation recapture on the sale of U.S. real estate (Section 1245 property) for an individual

3. The table below shows units of commodity X and Y that the U.S. and Mexico can produce with one- hour of labor time. Output Per Hour of Labor Commodity U.S. Mexico X (in units) 5 20 Y (in units) 30 5

a. Identify the commodity in which the U.S. and Mexico have a comparative advantage.

b. Suppose that the U.S. exchanges 15Y for 45X with Mexico. What is the TOT for commodity Y? How much would the U.S. and Mexico gain?

Jason Company offered a contest in which the winner would receive P1,000,000 payable over twenty years. On December 31, 2019, Jason Company announced the winner of the contest and signed a note payable to the winner for P1,000,000 payable in P50,000 installments every January 31. On December 31, 2019, Jason Company purchased an annuity for P418,250 to provide the P950,000 prize remaining after the first P50,000 installment which was paid on January 31, 2020. On December 31, 2019, what amount should be reported as note payable-contest winner, net of current portion?

Sunland Company, a manufacturer of audio systems, started its production in October 2020. For the preceding 3 years, Sunland had been a retailer of audio systems. After a thorough survey of audio system markets, Sunland decided to turn its retail store into an audio equipment factory.

Raw material costs for an audio system will total $77 per unit. Workers on the production lines are on average paid $13 per hour. An audio system usually takes 6 hours to complete. In addition, the rent on the equipment used to assemble audio systems amounts to $5,100 per month. Indirect materials cost $5 per system. A supervisor was hired to oversee production; her monthly salary is $3,700.

Factory janitorial costs are $2,000 monthly. Advertising costs for the audio system will be $9,000 per month. The factory building depreciation expense is $6,000 per year. Property taxes on the factory building will be $8,400 per year.

Assuming that Sunland manufactures, on average, 1,000 audio systems per month, enter each cost item on your answer sheet, placing the dollar amount per month under the appropriate headings. Total the dollar amounts in each of the columns.

Compute the cost to produce one audio system.

Assume that a Parent company acquires an 80% interest in its Subsidiary on January 1, 2020. On January 1, 2020, the book value of net assets and the fair value of the identifiable net assets equaled the book value of identifiable net assets (i.e. there was no AAP or Goodwill). The parent uses the equity method to account for its investment in the subsidiary.

On December 31, 2021, the Subsidiary company issued $1,000,000 (face) 6 percent, five-year bonds to an unaffiliated company for $1,085,379. The bonds pay interest annually on December 31, and the bond premium is amortized using the straight-line method. This results in annual bond-payable premium amortization equal to $17,076 per year.

On December 31, 2023, the Parent paid $974,229 to purchase all of the outstanding Subsidiary company bonds. The bond discount is amortized using the straight-line method, which results in annual bond-investment discount amortization equal to $8,590 per year.

The Parent and the Subsidiary report the following financial statements for the year ended December 31, 2024:

Required

Provide the consolidation entries worksheet for the year ended December 31, 2024.

If it says "Answer" in the box that is the question/missing data. If it says Answer with a bunch of words after it those are the choices from the drop down menu. (For example the journal entries some of the descriptions are missing along with the debit/credit amount)