Question

Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 94,000 pounds. The subsidiary immediately borrowed 225,000 pounds on a five-year note with 9 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 319,000 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 8,850 pounds per month. By year-end, rent payments totaling 88,500 pounds had been received, and 17,700 pounds was in accounts receivable. On October 1, 4,100 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 11,575 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	$	2.60	=	1 Pound
October 1, 2017		2.65	=	1
December 31, 2017		2.68	=	1
Average for 2017		2.64	=	1

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