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	$	223,000			$	648,000			$	498,000
Intersegment transfers		0				101,800				108,000
Operating expenses		220,000				254,000				238,000
Interest expense		34,000				47,000				37,000
Income taxes		85,000				37,000				52,000
Long-lived assets		139,000				198,000				148,000

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

Sales to unaffiliated customers	$	4,680,000
Intersegment transfers		517,000
Operating expenses		2,500,000
Interest expense		184,000
Income taxes		909,000
Long-lived assets		2,290,000

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

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

	revenues	percentage
U.S.
spain
italy
greece
totals

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

	assets	percentage
U.S
spain
italy
greece
total

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

identify the countries hich are 10% or more of consolidated sales

.

Answer 1

Solution:
Calculation of the Sales Unaffiliated Customers within a Country and as Percent of the Consolidated Sales:
Revenue Test (Sales to Unaffiliated Parties):
U S	$4,680,000	77.37%
Spain	$223,000	3.69%
Italy	$648,000	10.71%
Greece	$498,000	8.23%
Total	$6,049,000	100%
Calculation of the Long-Lived Assets within a Country and as Percentage of the Long Lived Assets:
Long-lived Asset Test:
U S	$2,290,000	82.52%
Spain	$139,000	5.01%
Italy	$198,000	7.14%
Greece	$148,000	5.33%
Total	$2,775,000	100%
Individual Foreign Countries does not Accept the Revenue or Long Lived Assets Materiality Tests, So Foreign Country Must be Reported Separately. In the Problem, the information must be Separately Presented for the United States, but it is Combined for all Other Countries.