The following financial information is for Chaux Blanc Company, a non-U.S. firm with shares listed on a U.S. stock exchange.
Net income, computed according to home country GAAP. . . . . . . . . . . . . . . . . . . . . . . $ 800,000
Stockholders’ equity, computed according to home country GAAP. . . . . . . . . . . . . . . . 3,500,000
Brand names developed in house and recorded as both
an increase in assets and an increase in equity . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 1,300,000
Obligation for postretirement medical care that is not
reported as a liability in the balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100,000
Development costs capitalized at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
If Chaux Blanc were following U.S. GAAP, the brand names would not have been recorded in the financial statements. In addition, the development costs would not have been capitalized but would have been expensed immediately. Finally, the postretirement medical care obligation would be reported as a liability according to U.S. GAAP. The additional postretirement medical care expense that would have been recognized for the year under U.S. GAAP is $360,000.
1. Prepare a reconciliation of Chaux Blanc’s reported stockholders’ equity of $3,500,000 to U.S. GAAP.
2. Reconcile Chaux Blanc’s reported net income of $800,000 to U.S. GAAP.