Question

Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 98,000 pounds. The subsidiary immediately borrowed 235,000 pounds ona five-year note with 5 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 333,000 pounds a building that had a 10-year expected life and no salvage value and is to be depreciated using the straight-line method. Also on January 1, 2017, the subsidiary rented the building for three years to a group of local attorneys for 8,950 pounds per month. By year-end, rent payments totaling 89,500 pounds had been received, and 17,900 pounds was in accounts receivable. On October 1, 4,300 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 11,525 pounds back to Sullivan's Island Company on December 31, 2017 The functional currency for the subsidiary is the pound. Currency exchange rates for 1 pound follow: January 1, 2017 October 1, 2017 December 31, 2017 Average for 2017 $2.40 2.45 2.48 2.44 1 Pound Prepare an income statement, statement of retained earnings, and balance sheet for this subsidiary in pounds and then translate these amounts into U.S. dollars.

Answer 1

Answer:

Income statement
		LCU	Exchange Rate	US dollars
	Rent revenue(8950*12)	1,07,400	2.44	2,62,056
	Less: Expenses
	Interest expenses(235000*5%)	11,750	2.44	28,670
	Repair expenses	4,300	2.45	10,535
	Depreciation expenses(333000/10)	33,300	2.44	81,252
	Total expenses	49,350		1,20,457
	Net income	58,050		1,41,599
Statement of retained earnings
		LCU	Exchange Rate	US dollars
	Balance as on Jan 1.	0	0	0
	Add: Net income	58,050		1,41,599
		58,050		1,41,599
	Less: Dividend paid	11,525	2.48	28,582
	Balance as on Dec 31.	46,525		1,13,017
Balance sheet
		LCU	Exchange Rate	US dollars
	Cash (Note:1)	73,675	2.48	1,82,714
	Accounts receivable	17,900	2.48	44,392
	Building	3,33,000	2.48	8,25,840
	Accumulated depreciation	-33,300	2.48	-82,584
	Total assets	3,91,275		9,70,362
	Interest payable	11,750	2.48	29,140
	Note payable	2,35,000	2.48	5,82,800
	Common stock	98,000	2.40	2,35,200
	Retained earnings	46,525		1,13,017
	Translation adjustment (Balancing figure)	-		10,205
	Total liabilities	3,91,275		9,70,362
Note.1
Cash =89500-4300-11525=73675