The Williams Company, a U.S.-based company, owns 100% of aEuropean Subsidiary (ES). The investment in ES totals $10 million(euros 13.5 million) as of the end of Year 1. This represents aninitial investment of $6 million and retained earnings of $4million. The Currency Translation Adjustment (CTA) account includedin Other Comprehensive Income (OCI) totals $1 million (loss) at theend of Year 1.

During Year 2, Williams decided to sell 25% of ES to the TremontCompany, an unrelated U.S.-based Company for $15 million in cash.The closing date of the transaction is June 30 of Year 2. Earningsof ES for the six months of Year 2 are $1 million and there was anadditional increase of $200,000 in the CTA during the first sixmonths of Year 2. No dividends have been paid by ES toWilliams.

Instructions:

1. Calculate the gain or the loss on the partial disposal byWilliams of ES as of June 30, Year 2, under both the US GAAP andIFRS. Make sure you show the details of both calculations andprovide authoritative references supporting the basis and thereasoning for each of your calculations.
2. Assume that during January Year 2, ES paid a dividend toWilliams of euro 6.75 million ($5 million). How would that dividendbe treated by Williams under both the US GAAP and IFRS? Whatimpact, if any, would this dividend have on the CTA account ofWilliams under both the US GAAP and IFRS? Make sure you show thedetails of any calculations and provide authoritative referencessupporting the basis and the reasoning for each of yourcalculations, if any.
3. Assume that Williams’s investment in ES totals $6 million, theamount of the original investment. ES had not made any money sincebeing formed by Williams as of December 31, Year 1, management hasdecided to sell ES, and to evaluate ES for any impairment charge inits Year 1 financial statements. The CTA totals $1 million at theend of Year 1. How would the evaluation of ES differ under the USGAAP and IFRS? Make sure you show the details of any calculationssupported by authoritative references when answering thisquestion.

• Your submission should be a minimum of 3 pages in length, notincluding the required cover and reference pages. Longersubmissions are permissible.