Problems 18–25 assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements. Ignore income taxes for each problem.Sapporo K.K. was sued by a competitor in late 2017, and company management concluded that there was a 55 percent probability that the company would lose the lawsuit. The best estimate of the loss on December 31, 2017, was 4,000,000 yen. In 2018, the lawsuit is concluded with Sapporo paying its competitor 5,000,000 yen on May 15, 2018.a. Determine the appropriate accounting for this lawsuit for the years ending December 31, 2017, and December 31, 2018, under (1) IFRS and (2) U.S. GAAP.b. Prepare the entry(ies) that the U.S. parent would make on the December 31, 2017, and Decem­ber 31, 2018, conversion worksheets to convert IFRS balances to U.S. GAAP.

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Problem 17-10 Personal Taxes, Bankruptcy Costs, and Firm Value Overnight Publishing Company (OPC) has $2.5 million in excess cash. The firm plans to use this cash either to retire all of its outstanding debt or to repurchase equity. The firm's debt is held by one institution that is willing to sell it back to OPC for $2.5 million. The Institution will not charge OPC any transaction costs. Once OPC becomes an all-equity firm, It will remain unlevered forever. If OPC does not retire the debt, the company will use the $2.5 million in cash to buy back some of its stock on the open market. Repurchasing stock also has no transaction costs. The company will generate $1.3 million of annual earnings before interest and taxes in perpetulty regardless of its capital structure. The firm immediately pays out all earnings as dividends at the end of each year. OPC is subject to a corporate tax rate of 21 percent and the required rate of return on the firm's unlevered equity is 20 percent. The…

P18–1 TAX EFFECTS OF ACQUISITION Connors Shoe Company is contemplating the acquisition of Salinas Boots, a firm that has shown large operating tax losses over the past few years. As a result of the acquisition, Connors believes that the total pretax profits of the merger will not change from their present level for 15 years. The tax loss carryforward of Salinas is $800,000, and Connors projects that its annual earnings before taxes will be $280,000 per year for each of the next 15 years. These earnings are assumed to fall within the annual limit legally allowed for application of the tax loss carryforward resulting from the proposed merger (see footnote 2 earlier in this chapter). The corporate tax rate is 21%. If Connors does not make the acquisition, what will be the company’s tax liability and earnings after taxes each year over the next 15 years? If the acquisition is made, what will be the company’s tax liability and earnings after taxes each year over the next 15 years? If…