Question

Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 75,000 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 235,000 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 8,100 pounds per month. By year-end, rent payments totaling 81,000 pounds had been received, and 16,200 pounds was in accounts receivable. On October 1, 4,800 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 13,400 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: 1 Pound January 1, 2017 October 1, 2017 December 31, 2017 Average for 2017 Ununun 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.)

Answer 1

Answer:

Sullivan's Island Company Subsidiary
Income Statement
	POUNDS	Exchange Rate	U.S. Dollars
Rent revenue(81,000+16,200)	97,200	$2.54	2,46,888
Interest expense (160,000 × 10%)	-16,000	$2.54	-40,640
Depreciation expense (235,000 × 10%)	-23,500	$2.54	-59,690
Repair expense	-4,800	$2.55	-12,240
Net income	52,900		1,34,318
Sullivan's Island Company Subsidiary
Statement of Cash Flows
	POUNDS	Exchange Rate	U.S. Dollars
Operating Activities:
Net income	52,900		1,34,318
plus: depreciation	23,500	$2.54	59,690
less: increase in accounts receivable	-16,200	$2.54	-41,148
plus: increase in interest payable	16,000	$2.54	40,640
Cash flow from operations	76,200		1,93,500
Investing Activities:
Purchase of building	-2,35,000	$2.50	-5,87,500
Financing Activities:
Sale of common stock	75,000	$2.50	1,87,500
Borrowing on note	1,60,000	$2.50	4,00,000
Dividends paid	-13,400	$2.58	-34,572
	2,21,600		5,52,928
Increase in cash	62,800		1,58,928
Effect of exchange rate change on cash			3,096
Beginning cash balance	-0-		-0-
Ending Cash balance	62,800	x $2.58 C =	1,62,024