Question
Mary Corporation, a U.S. corporation, formed a British subsidiary on January 1, 2019 by investing 550,000 British pounds () in exchange for all of the
Mary Corporation, a U.S. corporation, formed a British subsidiary on January 1, 2019 by investing 550,000 British pounds () in exchange for all of the subsidiary's no-par common stock. The British subsidiary, Tony Corporation, purchased real property on April 1, 2019 at a cost of 500,000, with 100,000 allocated to land and 400,000 allocated to the building. The building is depreciated over a 40-year estimated useful life on a straight-line basis with no salvage value. The U.S. dollar is Tony's functional currency, but it keeps its records in pounds. The British economy does not experience high rates of inflation. Exchange rates for the pound on various dates are:
January 01, 2019 = 1 = $1.61
April 01, 2019 = 1 = $1.62
December 31, 2019 = 1 = $1.66
2019 average rate = 1 = $1.64
Tony's adjusted trial balance is presented below for the year ended December 31, 2019.
In Pounds
Debits:
Cash 100,000
Accounts receivable 36,000
Notes receivable 49,500
Building 200,000
Land 50,000
Depreciation expense 3,750
Other expenses 57,500
Salary expense 104,000
Total debits 600,750
Credits
Accumulated depreciation 3,750
Accounts payable 50,000
Common stock 275,000
Retained earnings 0
Equity adjustment 0
Sales revenue 272,000
Total credits 600,750
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