Question

ullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 55,000 pounds. The subsidiary immediately borrowed 145,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 200,000 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 7,500 pounds per month. By year-end, rent payments totaling 75,000 pounds had been received, and 15,000 pounds was in accounts receivable. On October 1, 4,200 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 12,100 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	$	3.70	=	1 Pound
October 1, 2017		3.75	=	1
December 31, 2017		3.78	=	1
Average for 2017		3.74	=	1

Prepare a statement of cash flows in pounds for Sullivan's Island Company's foreign subsidiary and then translate these amounts into U.S. dollars. (Round your exchange rate answers to 2 decimal places. Amounts to be deducted and cash outflows should be indicated with minus sign.)

Sullivan's Island Company
	Income Statement
	For the Year Ended December 31, 2017
			LCU		rate	U.S. Dollars
Rent revenue
Interest expense
Depreciation expense
Repair expense
Net income
rent revenue = 7200*12
interest expense = 200000*10%
depeciation expense = 284000/10
Retained earnings, 1/1/17
Net income
Dividends paid
Retained earnings, 12/31/17
		Balance Sheet
		December 31, 2017
cash
Accounts receivable
Building
Accumulated depreciation
Total assets
Interest payable
Note payable
Common stock
Retained earnings
Translation adjustment
Total liabilities and equities
accounts receivable = 7200*2
interest payable = 200000*10%
Calculation of Translation
Net assets, 1/1/08
Change in net assets, 2008:
Common stock issuance
Net income
Dividends paid
Net assets, 12/31/08
Net assets, 12/31/08 at currentexchange rate
Translation adjustment, 2008

Answer 1

Answers Page No 0 Sullivarkos paland company income statement or the year ended dec 31, 2017: vid (To St incon company lu Dale Цео Bulliva Rent Prevenue a 75000 + 15000 ' - 90,000 pounds Interest expense = = 145000 X 10%. 14500 pounds Pounds Depreciation expense = 200,000 x 10 %. = 20,000 pounds OS Throme statement | Exchange rate dollars Rent revenue 90,000 $3.44 1 $336600 Interest expense -14500 $3.74 |- $ 54230 Depreciation expense $3.74 *74800 Repair expense -4200 $3.75 |- $15450 Net income 51300 $191820 420,000

Page No ③ statement of cashflowes Pounds Exchange / os rate dollars Operating activities Net income 51300 $191820 Depreciation 201000 $ 3.74 *74800 Sincrease in accounts receivable - 15000 $3.74 - $56100 Increase in interest payable 14500 43.4 $53650 cash flow from operations 70800 *264170 investing activities Purchase of building - 200,000 $3.40 $ 740,000 Finaning activities Sale of common stock 55000 $3.70 $203500 Borrowing on note 145000 $3140 $536500 Dividend paid - 12100 $3.78 -45738 187900 $694262 Incorease in cash 58400 $216432 Effect of exchange rate change $3454 on cash Beginning cash balance $0 Ending cash balance 58700 $3.48 221886