Just do problem E10.16
End-of-year Current payable U.S. . . . . . $5,243 Foreign . .. 1,486 Deferred U.S....... 3,240 Foreign . (186 Total . . . . . $9,783 How much tax expense did Watson & Watkins report on its income statement for the year? How much of the reported income tax expense was paid currently and how much was deferred to a future period for payment? What is implied by the negative foreign deferred income taxes of $186? 10.16 Analyzing Retirement Fund Obligations. The following information is taken from the 2018 annual report of Johnson & Johnson (J&J): ($ millions) 2018 2017 Projected benefit obligation $31,670 $33,221 Plan assets at fair value . . . 26,818 28,404 Net amount recognized in the company's balance sheet (as a liability). ....... (4,852) (4,817) Calculate the amount that J&J's retirement fund obligations are underfunded as of each year-end. How much of the underfunding is reported on the company's balance sheet? E10.17 (Appendix 10A) Analyzing Foreign Currency Hedges. The Mesa Company, a U.S.-based manufacturer, ordered a piece of equipment from Mexicali Inc., a Mexico-based supplier, agreeing to pay 396,000 Mexican pesos upon delivery of the equipment in three months time. At the time of the contract signing, the exchange rate between the U.S. dollar and the Mexican peso was 10P:$1. With concerns about a weakening U.S. dollar, The Mesa Company decided to hedge its currency exposure by purchasing a forward foreign exchange con- tract from a local bank. The forward contract committed The Mesa Company to pay $40,000 in three months in exchange for 396,000 pesos. What was the forward foreign exchange rate implicit in the contract (assuming no transaction costs)? If the foreign exchange rate in three months was 9.8P:$1, how much did The Mesa Company save by purchasing the currency hedge? If the foreign exchange rate in 3 months was 9.0P:$1, how much did the company save by purchasing the currency hedge? E10.18 (Appendix 10A) Analyzing Interest Rate Swaps. The Chandler Company purchases a piece of equipment from the Glendale Company by issuing a three-year note with a face value of $150,000. The two companies agree that the interest rate on the note will be pegged to LIBOR (London InterBank Offering Rate), which was currently six percent, and would be reset at the beginning of each year. Because of concerns about rising interest rates, The Chandler Company arranged an interest rate swap with its local bank. Under the swap agreement, The Chandler Company agreed to pay the bank six percent annually for the three-year period, thus swapping its potentially variable-rate interest payment for a fixed-rate payment. Calculate the value of The Chandler Company's loss over the three-year swap assuming that LIBOR drops to four percent at the end of the first year and remains there until the end of the swap agreement. Calculate the value of The Chandler Company's gain over the three-year swap assuming that LIBOR goes to eight percent at the end of the first year and remains there until the end of the swap agreement
