Question

Question No: 2

1. American Corporation, a US company, formed a British subsidiary on January 1, 2015 by investing £450,000 in exchange for all of the subsidiary’s no-par common stock. The British subsidiary, London Corporation, purchased real property on April 1, 2015 at a cost of £500,000, with £100,000 allocated to land and £400,000 allocated to a building. The building is depreciated over a 40-year estimated useful life on a straight-line basis with no salvage value. The British pound is London’s corporation functional currency and its reporting currency. The British economy does not have high rates of inflation. Exchange rates for the pound on various dates were:

           January 01, 2015      = 1£ = $1.50

           April 01, 2015          = 1£ = $1.51

           December 31, 2015 = 1£ = $1.58

           2015 average rate     = 1£ = $1.56

   London's Corporation adjusted trial balance is presented below for the year ended December 31, 2015.

   			In Pounds
   Debits:
   Cash	£		220,000
   Accounts receivable			52,000
   Inventory			59,000
   Building			400,000
   Land			100,000
   Depreciation expense			7,500
   Other expenses			110,000
   Cost of goods sold			220,000
   Total debits	£		1,168,500
   Credits
   Accumulated depreciation	£		7,500
   Accounts payable			111,000
   Common stock			450,000
   Retained earnings			0
   Equity adjustment			0
   Sales revenue			600,000
   Total credits	£		1,168,500

   Required: Prepare London’s Corporation Financial Statement under Current Rate Method.

2. Translation working papers;
3. Translated income statement; and
4. Translated balance sheet.

Answer 1