Question

Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 63,000 pounds. The subsidiary immediately borrowed 160,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 223,000 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 7,400 pounds per month. By year-end, rent payments totaling 74,000 pounds had been received, and 14,800 pounds was in accounts receivable. On October 1, 3,800 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 14,000 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	$	2.80	=	1 Pound
October 1, 2017		2.85	=	1
December 31, 2017		2.88	=	1
Average for 2017		2.84	=	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.)

Statement of Cash Flows
	Pounds	Exchange Rate	US Dollars
Operating Activities:
Net Income
Add: Depreciation expenses
Add: Increase in interest payable
Less: Increase in accounts receivable
Cash flow from operating activities =
Investing Activities
Purchase of building
Cash flow form investing activities =
Financial Activities:
Dividends
Capital contribution
Borrowing on note
Cash flow from financing activities =
Effect of exchange rate change on cash
Beginning balance in cash
Ending balance in cash

Answer 1

SULLIVAN'S ISLAND COMPANY Statement of Cash Flows For the Year Ended December 31, 2017
	Pounds	Exchange rate	U.S Dollars
Operating Activities:
Net Income	46700		132780
Add: Depreciation expenses	22300	2.84	63332
Less: Increase in accounts receivable	(14800)	2.84	(42032)
Add: Increase in interest payable	16000	2.84	45440
Cash flow from operating activities	70200		199520
Investing Activities:
Purchase of building	(223000)	2.80	(624400)
Cash flow from investing activities
Financing Activities:
Capital contribution	63000	2.80	176400
Borrowing on note	160000	2.80	448000
Dividends	(14000)	2.88	(40320)
Cash flow from financing activities	209000		584080
Increase in cash	56200		159200
Effect of exchange rate change on cash			2656
Beginning balance in cash
Ending balance in cash			161856

Ending balance in cash = 56200*2.88

Effect of exchange rate change on cash = 161856-159200 = $2656

	Pounds	Exchange rate	U.S Dollars
Rent revenue	88800	2.84	252192
Interest expense (160000*10%)	(16000)	2.84	(45440)
Depreciation expense (223000/10)	(22300)	2.84	(63332)
Repair expense	(3800)	2.8	(10640)
Net income	46700		132780