Question

Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2020, by investing capital in the amount of 80,000 pounds. The subsidiary immediately borrowed 154,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2021. The subsidiary then purchased for 234,000 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, 2020, the subsidiary rented the building for three years to a group of local attorneys for 8,600 pounds per month. By year-end, rent payments totaling 86,000 pounds had been received, and 17,200 pounds was in accounts receivable. On October 1, 2020, 3,600 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 11,000 pounds back to Sullivan's Island Company on December 31, 2020. The functional currency for the subsidiary is the pound. Currency exchange rates for 1 pound follow: January 1, 2020 October 1, 2020 December 31, 2020 Average for 2020 $ 3.50 - 3.55 - 3.58 - 3.54 - 1 Pound 1 1 Prepare a statement of cash flows in pounds for Sullivan's Island Company's foreign subsidiary, and then translate this statement 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

A B D E F 1 N 3 4 Ол Sullivan's Island Company Subsidiary Income Statement POUNDS Exchange Rate U.S. Dollars Rent revenue 103200 3.54 3653281 Interest expense (154,000 x 10%) - 15400 3.54 -54516 Depreciation expense (234,000/10) -23400 3.54 -82836 Repair expense -3600 3.55 -12780 Net income 60800 215196 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Sullivan's Island Company Subsidiary Statement of Cash Flows POUNDS Exchange Rate U.S. Dollars Operating Activities: Net income 60800 215196 plus: depreciation 23400 3.54 82836 less: increase in accounts receivable - 17200 3.54 -60888 plus: increase in interest payable 15400 3.54 54516 Cash flow from operations 82400 291660 Investing Activities: Purchase of building -234000 3.5 -819000 Financing Activities: Sale of common stock 80000 280000 Borrowing on note 154000 3.5 539000 Dividends paid -11000 3.58 -39380 223000 779620 Increase in cash 71400 252280 Effect of exchange rate change on cash 27456 Beginning cash balance Ending Cash balance 62800 3.58 224824 Sheet18 Sheet19 Sheet20 Sheet21 Sheet22 Sheet23 Sheet24 Sheet25 20 21 un mm 22 23 24 25 26 27 28 KI Sheet

For calculation ref:

А B с D E 1 N 3 4 5 Sullivan's Island Company Subsidiary Income Statement POUNDS Exchange Rate U.S. Dollars Rent revenue =8600*12 3.54 =C4*D4 Interest expense (154,000 x 10%) =-154000*10% 3.54 =C5%D5 Depreciation expense (234,000/10) =-234000/10 3.54 =C6*D6 Repair expense -3600 3.55 1=C7*D7 Net income =SUM(C4:07) =SUM(E4:E7) 6 7 8 9 10 Sullivan's Island Company Subsidiary 11 Statement of Cash Flows POUNDS Exchange Rate U.S. Dollars 12 Operating Activities: 13 Net income =C8 =E8 14 plus: depreciation |=234000/10 3.54 =C14*D14 15 less: increase in accounts receivable - 17200 3.54 1=C15*D15 16 plus: increase in interest payable =154000*10% 3.54 =C16*D16 17 Cash flow from operations =SUM(C13:C16) =SUM(E13:E16) 18 Investing Activities: 19 Purchase of building -234000 3.5 =C19*D19 20 Financing Activities: 21 Sale of common stock 80000 3.5 =C21*D21 22 Borrowing on note 154000 3.5 =C22*D22 23 Dividends paid -11000 3.58 =C23*D23 24 =SUM(C21:C23) =SUM(E21:E23) 25 Increase in cash =C24+C19+C17 =E24+E19+E17 26 Effect of exchange rate change on cash 1=E25-E28 27 Beginning cash balance 28 Ending Cash balance 62800 3.58 =D28*C28 HSheet18 Sheet19 Sheet20 Sheet21 Sheet22 Sheet23 Sheet24 Sheet25 Shee