Refer to the following information provided in the chapter for Arcot Company:
• Consolidated financial statements in Exhibits 10.8 and 10.9.
• Differences between Local GAAP and U.S. GAAP in Exhibit 10.10.
• Reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11.
Use an electronic spreadsheet to complete the requirements of this problem. Required:
a. Use the information in Exhibits 10.8 and 10.9 to create worksheets for the restatement of income and retained earnings and the balance sheet for the year ended December 31, Year 1.
b. Prepare debit/credit reconciling entries for each Year 1 reconciliation item included in the reconciliation from Local GAAP to U.S. GAAP in Exhibit 10.11.
c. Post the debit/credit reconciling entries for Year 1 to the worksheets created in (a) and determine balances for Year 1 on a U.S. GAAP basis.
d. Calculate the following ratios on a Local GAAP and a U.S. GAAP basis for Year 1 and summarize the differences.
Current ratio [Current assets/Current liabilities]
Total asset turnover [Sales/Total assets at year-end]
Debt/equity ratio [Total liabilities/Total stockholders' equity]
Times interest earned [(Income before income taxes + Interest expense)/
Interest expense] Net profit margin [Net income/Sales]
Return on equity [Net income/Average total stockholders' equity] Operating profit margin [Operating income/Sales]
Operating income as percent of total stockholders' equity [Operating income/ Average total stockholders' equity]