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	$	225,000			$	650,000			$	500,000
Intersegment transfers		0				101,700				110,000
Operating expenses		222,000				256,000				240,000
Interest expense		35,000				48,000				38,000
Income taxes		86,000				38,000				53,000
Long-lived assets		141,000				200,000				150,000

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

Sales to unaffiliated customers	$	4,690,000
Intersegment transfers		522,000
Operating expenses		2,505,000
Interest expense		186,000
Income taxes		914,000
Long-lived assets		2,295,000

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

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

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

3. 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)

Consolidated sales = $(4,690,000+ 225,000+ 650,000+ 500,000) = $6,065,000

%, United States = 4,690,000/ 6,065,000 = 0.773 = 77.3%

%, Spain = 225,000/ 6,065,000= 0.037 = 3.7%

%, Italy = 650,000/ 6,065,000= 0.107 = 10.71%

%, Greece = 500,000/ 6,065,000= 0.082= 8.2%

(b)

Consolidated Long Lived Assets = $(2,295,000+ 141,000+ 200,000+ 150,000) = $2,786,000

%, United States = 2,295,000/ 2,786,000= 0.824= 82.4%

%, Spain = 141,000/ 2,786,000= 0.050= 5.0%

%, Italy = 200,000/ 2,786,000= 0.072= 7.2%

%, Greece = 150,000/ 2,786,000= 0.054 = 5.4%

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