Question

Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 96,000 pounds. The subsidiary immediately borrowed 230,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 326,000 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 8,900 pounds per month. By year-end, rent payments totaling 89,000 pounds had been received, and 17,800 pounds was in accounts receivable. On October 1, 4,200 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 11,550 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 $ 2.70 = 1 Pound October 1, 2017 2.75 = 1 December 31, 2017 2.78 = 1 Average for 2017 2.74 = 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

ANSWER

Income Statement:

Income statement
For the year ended Dec 31, 2017
(Amount in Pounds)
Revenues (8900x12)		106800
Operating Expenses:
Depreciation Expense (326000/10)	32600
Repairs	4200
Total Operating Expenses		36800
Operating Income		70000
Non-Operating income(Expense)
Interest Expense (230,000 x 10%)		23000
Net income		47000

Statement of Retained Earnings:

Statement of Retained Earnings
For the year ended Dec 31, 2017
(Amount in Pounds)
Beginning Retained Earnings	0
Net income	47000
Balance	47000
Less: cash dividends	-11550
Retained Earnings as on Dec 31, 2017	35450

Balance Sheet:

Balance sheet
For the year ended Dec 31, 2017
(Amount in Pounds)
Assets		Liabilities
Current Assets:		Current Liabilities:
Cash	73250	Interest payable	23000
Accounts receivable	17800
Total current assets	91050	Note payable	230000
		Total Liabilities	253000
Property, Pant, and Equipment:		Stockholder's Equity:
Building	326000	Common Stock	96000
Less: Accumulated depreciation	-32600	Retained Earnings	35450
Net property,plant, and equipment	293400	Total Stockholder's equity	131450
Total Assets	384450	Total Liabilities and stockholder's equity	384450

Cash Balance:

Cash
(Amount in Pounds)
Common stock	96000
Note payable	230000
Rent revenue collected	89000
Purchase of Buildings	-326000
Repairs	-4200
Cash dividends	-11550
Cash balance as on Dec 31, 2017	73250

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