International Accounting

PR 13. Brookhurst Company (a US-based company) established a subsidiary in South Africa on Jan 1, Year 1, by investing 300,000 South African rand (ZAR) when the exchange rate was US$0.09/ZAR 1. On that date, the foreign subsidiary borrowed ZAR 500,000 from local banks on a 10-year note to finance the acquisition of plant and equipment. The subsidiary's opening balance sheet (in ZAR) was as follows:

Balance Sheet January 1, Year 1 Cash 300,000 Longterm debt 500,000 Plant and equipment 500,000Capital stock 300,000 Total 800 000-800 000 \fStatement of Retained Earnings Year 1 Retained earnings, Net income 1/1/Y1- Retained earnings, 12/31/Y1 70,000 Balance Sheet December 31, Year 1 ZAR Cash 80,000 Receivables 150,000 Inventory 270,000 Plant and equipment (net) 450,000 Total assets 950,000 Accounts payable 80,000 Long-term debt 500,000 Common stock 300,000 Retained earnings, 12/31/Y1 70,000 Total liabilities and stockholders' equity 950,000 Relevant exchange rates for Year 1 are as follows (US$ per ZAR): January 1, Year 1 $0.090 June 1, Year 1 0.095 Average for Year 1 0.096 November 15, Year 1 0.100 December 1, Year 1 0.105 December 31, Year 1 0.110