Question

Fenwicke Company organized and began operating a subsidiary in a foreign country on January 1, 2015, by investing LCU 86,000. This subsidiary immediately borrowed LCU 215,000 on a five-year note with 9 percent interest payable annually beginning on January 1, 2016. The subsidiary then purchased for LCU 301,000 a building that had a 10-year anticipated life and no salvage value and is to be depreciated using the straight-line method. Also on January 1, the subsidiary rents the building for three years to a group of local doctors for LCU 5,000 per month. By year-end, payments totaling LCU 50,000 had been received. On October 1, LCU 4,700 was paid for a repair made on that date. The subsidiary transferred a cash dividend of LCU 3,000 back to Fenwicke on December 31, 2015. The functional currency for the subsidiary is the LCU. Currency exchange rates for 1 LCU follow: January 1, 2015 October 1, 2015 Average for 2015 December 31, 2015 $ 2.20 = 1 LCU 2.10 = 1 2.00 = 1 1.80 = 1 Prepare an income statement, statement of retained earnings, and balance sheet for this subsidiary in LCU and then translate these amounts into U.S. dollars. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Answer:

FENWICKE COMPANY SUBSIDIARY Income Statement For the year ended Dec. 31, 2015
	LCU	Exchange Rate	U.S. Dollars
Revenue	50,000	2.00	100,000
Less: Interest expense	-19,350	2.00	-38,700
Less: Depreciation expense	-30,100	2.00	-60,200
Less: Repair expense	-4,700	2.10	-9,870
NET INCOME	-4,150		-8,770

FENWICKE COMPANY SUBSIDIARY Statement of Retained Earnings For the year ended Dec. 31, 2015
	LCU	Exchange Rate	U.S. Dollars
Retained Earnings, 1/1	0
Net Income	-4,150	-	-8,770
Dividends	-3,000	1.80	-5,400
Retained Earnings, 12/31	-7,150		-14,170

FENWICKE COMPANY SUBSIDIARY Balance Sheet as on Dec. 31, 2015
	LCU	Exchange Rate	U.S. Dollars
Assets:
Cash (86,000+215,000-301,000+50,000-4,700-3,000)	42,300	1.80	76,140
Property, plant and equipment	301,000	1.80	541,800
Less : Accumulated Depreciation	(30,100)	1.80	(54,180)
Total Assets	313,200		563,760
Liabilities and Equities:
Accured interest	19,350	1.80	34,380
Note payable	215,000	1.80	387,000
Contributed Capital	86,000	2.20	189,200
Retained earnings	(7,150)		(14,170)
Translation adjustment			(32,650)
Total Liabilities and Equities	313,200		563,760

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