Question

Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 100,000 pounds. The subsidiary immediately borrowed 240,000 pounds on a five-year note with 6 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 340,000 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 9,000 pounds per month. By year-end, rent payments totaling 90,000 pounds had been received, and 18,000 pounds was in accounts receivable. On October 1, 4,400 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 11,500 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 $ 2.40 = 1 Pound October 1, 2017 2.45 = 1 December 31, 2017 2.48 = 1 Average for 2017 2.44 = 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

		Suvillivan Companys Subsidiary
		Income Statement
			in Pounds	Exchange Rate		U.S. Dollars
9000*12		Rent Revenue	108000	2.44		263520
240000*6%		Interest Expense	14400	2.44		35136
340000/10		Depreciation Expense	34000	2.44		82960
4400		Repair Expense	4400	2.45		10780
		Net Income	55200			134644
		Statement of Retained Earnings
		Retained Earnings, 1/1	0
		Net Income	55200			134644
		Dividends Paid	11500	2.48		28520
		Retained Earnings, 12/31	43700			106124
		Balance Sheet
			In Pounds			U.S. Dollars
100000+240000-340000+90000-4400-11500		Cash	74100	2.48		183768
		Accounts Receivable	18000	2.48		44640
		Building	340000	2.48		843200
		Accumulated Depreciation	-34000	2.48		-84320
		Total Assets	398100			987288
		Interest Payable	14400	2.48		35712
		Note Payable	240000	2.48		595200
		Common Stock	100000	2.4		240000
		Retained Earnings	43700			106124
		Translation Adjustments				10252
		Total Liabilities and Equities	398100			987288
		Computation of Translation Adjustment
		Beginning Net Assets
		Increase in Net assets
		Issued common stock	100000	2.4		240000
		Net income	55200			134644
		Decrease in net assets
		Dividends Paid	11500	2.48		28520
		Ending Net Assets	143700			346124
		Ending Net Assets at current exchange rate	143700	2.48		356376
		Translation Adjustment (negative)				-10252