Evaluating Foreign Operations

For many years, Clark Company operated exclusively in the United States but recently
expanded its operations to the Pacific Rim countries of Indonesia, Singapore, and Australia.
After a modest beginning in these countries, recent successes have resulted in an increased
level of operation in each country. Operating information (in thousands of U.S. dollars) for the
company’s domestic and foreign operations follows.

New Zealand Indonesia Singapore Australia

Sales to $3,000 $520 $ 80 $220
unaffiliated
Interarea sales 200 30
Operating 2,520 300 90 60
expenses
Long-lived 3,200 380 240 100
assets

In addition, common costs of $150,000 are to be allocated to operations on the basis of the ratio
of an area’s sales to nonaffiliates to total company sales to nonaffiliates.

Required
a. Determine the profit or loss for each geographic segment.
b. Determine which, if any, of the three individual foreign geographic segments is separately
reportable using a 10 percent materiality threshold.

Answer

a. Profit or loss for each geographic area:

New Zealend Indonesia Singapore Australia

Sales to $3,000 $520 $80 $220
unaffiliated
Interarea sales 200 __ 30
Total revenues $3,200 $520 $110 $220
Operating 2,520 300 90 60
expenses
Allocated costs 117,8 a 20,41 3,14 8,63
Operating profit $ 562,2 $ 199,59 $ 16.86 $ 151.37
(loss)
a
$117.8 = ($3000 sales to unaffiliated / $3,820 total sales to unaffiliated) x $150
common costs to be allocated

b. The company must report the following, unless it is impracticable to do so:

a. Revenues from external customers attributed to (1) the company’s

home country of domicile and (2) the total revenue attributed to all foreign
countries in which the enterprise generates revenues. If revenues from
external customers generated in an individual country are material, then the
revenues for that country shall be separately disclosed.
 b. Long-lived productive assets (1) located in the entity’s home country
of domicile and (2) the total assets located in all foreign countries in which the
entity holds assets. If assets in an individual foreign country are material, then
the amounts of assets held in that specific country shall be disclosed
separately.

Total foreign sales to unaffiliates = $ 820 = 31.46%

Consolidated sales to unaffiliates $3,820

Total foreign assets = $ 820 = 20.91%

Total long-lived assets $3.920

Revenues and long-lived assets for domestic and total foreign operations must be
disclosed.