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Lucky Star Co. began operating a subsidiary in a foreign country on January 1, 2021 by acquiring all of the common stock for $50,000 Stickles,
Lucky Star Co. began operating a subsidiary in a foreign country on January 1, 2021 by acquiring all of the common stock for $50,000 Stickles, the local currency. This subsidiary Immediately borrowed $120,000 on a five-year note with ten percent interest payable annually beginning on January 1, 2022. A building was then purchased for $170,000 on January 1, 2021. This was all done without intervention by Lucky Star This property had a ten- year anticipated life and no salvage value and was to be depreciated using the straight-line method. The building was immediately rented for three years to a group of local doctors for $6,000 per month. By year-end, payments totaling $60,000 had been received. On October 1, $5,000 were paid for a repair made on that date and it was the only transaction of this kind for the year. Lucky Star is not concerned about cash repatriation. Nevertheless, a cash dividend of 86,000 was transferred back to Lucky Star on December 31, 2021. 1 The functional currency for the subsidiary was the Stickle (S). Currency exchange rates were as follows: January 1, 2021 October 1, 2021 Average for 2021 December 31, 2021 $ 1 = $ 2.40 $1 = $ 2.22 $ 1 = $ 2.28 $1= $ 2.16 Required: A. Identify and explain the appropriate method of translation for the financial statements of the foreign subsidiary? [3 marks) B. Prepare the following statements for this subsidiary in stickles and then translate the amounts into Canadian dollars: I. Income statement (4 marks) II. Statement of Retained Earnings [3 marks] iii. Balance Sheet (assume at year end, cash balance amounted to $72,000) (15 marks)
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