Fenwicke Company began operating a subsidiary in a foreign country on January 1, 2013, by acquiring all

Question:

Fenwicke Company began operating a subsidiary in a foreign country on January 1, 2013, by acquiring all of its common stock for LCU 40,000, which was equal to fair value. This subsidiary immediately borrowed LCU 100,000 on a five-year note with 10 percent interest payable annually beginning on January 1, 2014. 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. 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, 2013.

The functional currency for the subsidiary is the LCU. Currency exchange rates for 1 LCU follow:

January 1, 2013 . . . . . . . . . . . . . . . . . $2.00 5 1 LCU

October 1, 2013 . . . . . . . . . . . . . . . . . . . . . . 1.85 = 1

Average for 2013 . . . . . . . . . . . . . . . . . . . . . 1.90 = 1

December 31, 2013 . . . . . . . . . . . . . . . . . . . .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.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...