Question

Fenwicke Company organized and began operating a subsidiary in a foreign country on January 1, 2015, by investing LCU 40,000. This subsidiary immediately borrowed LCU 100,000 on a 5-year note with 10 percent interest payable annually beginning on January 1, 2016. The subsidiary then purchased for LCU 140,000 a building that had a 10-year anticipated life and no salvage value and is to be depreciated using the straight-line method. Also on January 1, the subsidiary rents the building for three years to a group of local doctors for LCU 5,000 per month. By year-end, payments totaling LCU 50,000 had been received. On October 1, LCU 4,000 was paid for a repair made on that date. The subsidiary transferred a cash dividend of LCU 5,000 back to Fenwicke on December 31, 2015. The functional currency for the subsidiary is the LCU. Currency exchange rates for 1 LCU follow:

January 1, 2015 . . . . . . . . . . . . . . . . . . . . . . .	$2.00 = 1 LCU
October 1, 2015 . . . . . . . . . . . . . . . . . . . . . . .	1.85 = 1
Average for 2015 . . . . . . . . . . . . . . . . . . . . . .	1.90 = 1
December 31, 2015 . . . . . . . . . . . . . . . . . . . .	1.80 = 1

Prepare an income statement, statement of retained earnings, and balance sheet for this subsidiary in LCU and then translate these amounts into U.S. dollars.

Answer 1

Fenwicke Company

Income Statement

For the Year Ended Dec 31, 2015

Particulars	Amount(In LCU)	Exchange Rate	Amount(In US Dollar)
Rent Revenue	60,000	1.90	114,000
Interest Expenses (100,000*10%)	(10,000)	1.90	(19,000)
Depreciation (140,000/10)	(14,000)	1.90	(26,600)
Repairs Expenses	(4,000)	1.85*	(7,400)
Net Income	32,000		$61,000

        Note- *Repairs is the only expenses which in not incurred evenly throughout the year.

Fenwicke Company

Statement of Retained Earnings

For the Year Ended Dec 31, 2015

Particulars	Amount(In LCU)	Exchange Rate	Amount(In US Dollar)
Retained Earnings: Jan 1, 2015	0.00		0.00
Net Income	32,000		61,000
Dividend Paid	(5,000)	1.80	(9,000)
Retained Earnings: Dec 31, 2015	27,000		$52,000

Fenwicke Company

Balance Sheet

As on December 31, 2015

Particulars	Amount(In LCU)	Exchange Rate	Amount(In US Dollar)
Cash	41,000	1.80	73,800
Accounts Receivable	10,000	1.80	18,000
Building	140,000	1.80	252,000
Accumulated Depreciation	(14,000)	1.80	(25,200)
Total Assets	177,000		$318,600
Interest Payable	10,000	1.80	18,000
Note Payable	100,000	1.80	180,000
Common Stock	40,000	2.00	80,000
Retained Earnings	27,000		52,000
Translation Adjustment			(11,400)
Total Liabilities and Equities	177,000		$318,600

Calculation of Translation Adjustment:-

Particulars	Amount(In LCU)	Exchange Rate	Amount(In US Dollar)
Opening Net Assets	0.00		0.00
Increase in Net Assets:
Issued Common Stock	40,000	2.00	80,000
Net income	32,000		61,000
Decrease in Net Assets:
Dividends Paid	(5,000)	1.80	(9,000)
Ending Net Assets	67,000		$132,000
Ending Net Assets at Current Exchange Rate	67,000	1.80	120,600
Translation Adjustment			($11,400)