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The title of each problem is followed by the estimated time in minutes required for completion and by a
difficulty rating. The time estimates are applicable for students using the partially filled-in working papers.
CASES
Case 11–1 Arguments in favor of the FASB’s continuing issuance of Statements include the unique
features of many accounting issues in the United States, such as financial instruments
(including derivative instruments) valuation and disclosure, accounting for stock compensation
plans, and accounting for postemployment benefits other than pensions, that necessitate action
by the FASB; and the past slow progress of the IASB, as evidenced by its paucity of output as
compared with that of the FASB. Arguments in favor of the FASB’s serving as a collaborator
in the convergence project with the IASB center on the more efficient use of scarce resources
available to accounting standard setters: Focusing efforts in one international standard-setting
organization, rather than in several national organizations, would assure more rapid
achievement of uniform international accounting standards.
Case 11–2 Supporters of the SEC’s participation in the work of IOSCO argue that enhancing the ability
of multinational enterprises to have their securities traded on international stock exchanges will
facilitate international movements of capital and increase alternative investments available to
the world’s investors. Those who oppose the SEC’s possible acquiescence to the application of
International Accounting Standards in financial reports of foreign enterprises wanting to
have their securities traded in the United States point to the potential danger of erosion of U.S.
accounting standards in areas that appear superior to International Accounting Standards. In
the view of opponents, the sanctioning of alternatives in some International Accounting
The McGraw-Hill Companies, Inc., 2006
Solutions Manual, Chapter 11 101
Standards will decrease comparability among the financial reports of U.S. enterprises and
foreign enterprises because the trend in U.S. accounting standard setting has been to limit
significantly alternative accounting principles for a specific business transaction or event.
Case 11–3 Students’ solutions to this case should be evaluated on the extent to which they address the
numerous qualitative and quantitative disclosures required for derivative instruments by
paragraphs 44 and 45 of FASB Statement No. 133, “Accounting for Derivative Instruments
and Hedging Activities.” Perhaps selected students might make a Powerpoint-enhanced oral
presentation of their solution.
b.
20 05
Aug 1 Investment in Forward Contract 9 7 5 0 0
Forward Contract Payable 9 7 5 0 0
30 Investment in Pounds 9 6 0 0 0
Forward Contract Payable 9 7 5 0 0
Investment in Forward Contract
($97,500 – $995 – $505) 9 6 0 0 0
Cash 9 7 5 0 0
20 05
June 27 Inventories (C100,000 x $1.05) 1 0 5 0 0 0
Trade Accounts Payable 1 0 5 0 0 0
b. Spheric Company
Journal Entries
20 05
Mar 31 Foreign Currency Transaction Losses [$35,000 –
(S$100,000 x $0.33) – ($2,000 x 0.06 x 30/360)] 1 9 9 0
Investment in Forward Contract 1 9 9 0
20 05
Nov 19 Trade Accounts Receivable (£38,000 x $1.45) 5 5 1 0 0
Sales 5 5 1 0 0
b. Iberia Company
Journal Entries
20 05
Jun 30 Notes Receivable (LCU7,500 000 x $0.014) 1 0 5 0 0 0
Sales 1 0 5 0 0 0
20 05
June 30 Machinery and Equipment (¥500,000 x $0.0084) 4 2 0 0
Accounts Payable 4 2 0 0
30 Accounts Payable 4 2 0 0
Cash 4 2 0 0
Inventories 5 2 0 0 0
Forward Contracts 5 2 0 0 0
To correct accounting for forward contract that
matured Sept. 30, 2005