Reporting Operations in Different Countries
Watson Inc., a multinational company, has operating divisions in France, Mexico, and Japan as well as in the United States. The company reported the following information on its consolidated financial statements for 20X5:
From the consolidated income statement: |
|
Sales revenues | $856,000,000 |
Net income | 60,000,000 |
From the consolidated balance sheet: |
|
Total assets | $750,000,000 |
The following additional information was assembled for Watson’s domestic and international operations for 20X5 (dollars stated in millions):
Item | Domestic | France | Mexico | Japan |
Sales to unaffiliated customers | $430 | $300 | $36 | $90 |
Intracompany sales between |
|
|
|
|
geographic areas | 50 |
|
| 10 |
Operating profit | 7 | 40 | 2 | 18 |
General corporate expenses | 30 |
|
|
|
Long-lived assets | 235 | 160 | 29 | 81 |
Additional Information
1. The domestic intracompany sales of $50,000,000 were made to Watson’s French division. A total gross profit of $20,000,000 was realized by Watson’s domestic operations on these sales. At December 31, 20X5, $10,000,000 of the total gross profit was unrealized from a consolidated viewpoint. At December 31, 20X5, Watson’s French division owed domestic $15,000,000 related to these sales.
2. The intracompany sales made by Watson’s Japanese division were made to Watson’s Mexican division. The Japanese division realized a gross profit of $2,000,000 on the sales. At December 31, 20X5, all of the goods sold to the Mexican division remained in its inventory. At December 31, 20X5, the Japanese division had an $8,000,000 receivable related to these sales.
Required
a.Determine whether Watson Inc. must separately report its foreign operations.
b.Determine which of the three individual foreign geographic segments is separately reportable, using a 10 percent materiality threshold.
c.Prepare the information about the company’s domestic and foreign operations as required by FASB 131 (ASC 280).
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