Problem
I. YXZ Co. issues a product recall due to a significant defect discovered after the end of its fiscal year. Financial statements have not yet been issued. The loss from the recall is estimated at $70 million.
What action is required by YXZ Co. about the contingency from the recall? Explain.
II. On November 30, Z Corporation purchased inventory from a Thai supplier. The Thai company requires payment to be made in Thai baht. What exchange rate should be used to value the account payable on the income statement ?
III. A company located in the US, which has dollar as its functional currency, purchased inventory on February 1 from Japan for 10,000,000 yen with a payment date of April 1. One ($1) yen can be exchanged for $0.01 on February 1 and one yen can be exchanged for $0.12 on April 1. On April 1, the company pays off the $10,000,000 in debt from the inventory purchase. When the US company presents its financial statements, which of the following statements is false?
i. No profit is recognized related to inventory
ii. A loss of $20,000 is reported as a result of accounts payable
iii. the company would have to present in the state a gross profit of $110,000
iv. cost of goods sold is stated at $120,000.