Question

Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 96,000 pounds. The subsidiary immediately borrowed 230,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 326,000 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, 201, the subsidiary rented the building for three years to a group of local attorneys for 8,900 pounds per month. By year-end, rent payments totaling 89,000 pounds had been received, and 17,800 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 11,550 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 $2.70 2.75 1 Pound 1 2.78 2.74 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

Income Statement
Revenue	Amount in Pounds	Amount in US$	Rates applied
Net Sales	106,800	292,632	2.74
	106,800	292,632
Expenses
Repairs	4,200	11,550	2.75
Depreciation	32,600	88,020	2.70
Interest Expense	23,000	63,020	2.74
	59,800	162,590
Net income	47,000	130,042
Dividend	11,550	32,109	2.78
Net Profit	35,450	97,933
Balance sheet
Current Assets			2.78
Cash	73,250	203,635	2.78
Account receivable	17,800	49,484	2.78
	91,050	253,119
Non Current Assets
Property, plant and equipment	326,000	880,200	2.70
Less : Accumulated Depreciation	(32,600)	(88,020)	2.70
	293,400	792,180
Total Assets	384,450	1,045,299
Current Liabilities
Accured interest	23,000	63,940	2.78
Long term Liabilities
Long term debts	230,000	639,400	2.78
Equity Capital
Common Stock	96,000	259,200	2.70
Retained earning	35,450	97,933
Other Comprehensive income(CTA)		(15,174)
	384,450	1,045,299