Question

Taft Corporation operates primarily in the United States. However, a few years ago, it opened a plant in Spain to produce merchandise to sell there. This foreign operation has been so successful that during the past 24 months the company started a manufacturing plant in Italy and another in Greece. Financial information for each of these facilities follows:

	Spain				Italy				Greece
Sales	$	227,000			$	652,000			$	502,000
Intersegment transfers		0				101,600				112,000
Operating expenses		224,000				258,000				242,000
Interest expense		36,000				49,000				39,000
Income taxes		87,000				39,000				54,000
Long-lived assets		144,000				202,000				152,000

The company’s domestic (U.S.) operations reported the following information for the current year:

Sales to unaffiliated customers	$	4,700,000
Intersegment transfers		527,000
Operating expenses		2,510,000
Interest expense		188,000
Income taxes		919,000
Long-lived assets		2,300,000

Taft has adopted the following criteria for determining the materiality of an individual foreign country:

1. Calculate sales to unaffiliated customers within a country and as a percent of the consolidated sales.

2. Calculate long-lived assets within a country and as a percentage of the long-lived assets.

3. Apply Taft’s materiality tests to identify the countries which are 10 percent or more of consolidated sales or consolidated long-lived assets to be reported separately.

Answer 1