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Chapter 1: Exercise 1 (p. 38)a) Calculate gross profit margin (gross profit/sales), operating profit margin (operating profit / sales) and net profit margin (net earnings/sales) for each of these companies. If a particular ratio cannot be calculated, explain why not.b. Is it valid to compare the profit margins calculated in part (a) across these companies in assessing relative profitability? Exercise 7 (p. 40)As noted in this chapter, diversity in accounting practice across countries generates problems for a number of groups.a) Which is the greatest problem arising from worldwide accounting diversity?b) Which groups is most affected by worldwide accounting diversity?c) Which group can most easily deal with problems associated with accounting diversity?
Exercise 8 (p. 40)Various attempts have ben made to reduce the accounting diversity that exists internationally. This process is known as convergence and is discussed in more detail in Chapter 3. The ultimate form of convergence would be a world in which all countries followed a similar et of financial reporting rules and practices. Which of the sources of Accounting Diversity represents the greatest impediment to the international convergence of accounting? Which factor do you believe creates the smallest impediment to convergence?
Chapter 2: Exercise 1 (p. 77-78)Refer to worksheet in Exhibits 10.12 and 10.13 in which the financial statements of Acrot Company have been restated to U.S GAAP. a) Calculate each of the ratios listed below using (1) the Local GAAP amounts in Column 1, and (2) the U.S. GAAP amounts in Column 4. b) Determine the percentage difference in each of these ratios using the formula (U.S. GAAP ratio – Local GAAP ratio) / Local GAAP ratio. c) Determine which ratios appear to be most and least affected by differences in the two sets of accounting principles.
Question 18Please find below the worksheets in Exhibit 10.12 and 10.13 in which the financial statements of Arcot Company have been restated to U.S. GAAP. Required:Calculate each of the ratios listed below using (1) the Local GAAP amounts in Column 1, and (2)the U.S. GAAP amounts in Column 4. Round to 3 decimal places.RatioLocal GAAPU.S. GAAPProfit marginBlank 1Blank 2Return on equityBlank 3Blank 4ARCOT COMPANYWorksheet for Restatement of Income and Retained Earnings to U.S. GAAPfor the Year Ended December 31, Year 3(1)(2)(3)(4)Reconciling Adjustments(Millions of Crowns)Local GAAPDebitCreditU.S. GAAPSales9,148 9,148Cost of goods sold(5,163) 169(1)(4,994)Gross profit3,985 4,154Operating expenses(453)22(4)40(2)(350)5(3)14(4) 3(6) 73(7) Operating income3,532 3,804Interest expense(156) (156)Other income(expense), net132124(5) (41)49(8) Income before income taxes3,508 3,607Provision for income taxes(1,052)29(11) (1,081)Net income2,456 2,526Retained earnings, January 14,27634(4)19(1) 24(6)40(2) 70(8)24(3) 13(11) Dividends340 340(10)0Retained earnings, December 316,392 6,770ARCOT COMPANYWorksheet for the Restatement of Balance Sheet to U.S. GAAPfor the Year Ended December 31, Year 3(1)(2)(3)(4)Reconciling Adjustments(Millions of Crowns)Local GAAPDebitCreditU.S. GAAPCash1,704 1,704Accounts receivable2,798 2,798Inventories5,276188(1) 5,464