Question
ullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 55,000 pounds. The
ullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 55,000 pounds. The subsidiary immediately borrowed 145,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 200,000 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, 2017, the subsidiary rented the building for three years to a group of local attorneys for 7,500 pounds per month. By year-end, rent payments totaling 75,000 pounds had been received, and 15,000 pounds was in accounts receivable. On October 1, 4,200 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 12,100 pounds back to Sullivan's Island Company on December 31, 2017. The functional currency for the subsidiary is the pound. Currency exchange rates for 1 pound follow:
| January 1, 2017 | $ | 3.70 | = | 1 Pound |
| October 1, 2017 | 3.75 | = | 1 | |
| December 31, 2017 | 3.78 | = | 1 | |
| Average for 2017 | 3.74 | = | 1 | |
Prepare a statement of cash flows in pounds for Sullivan's Island Company's foreign subsidiary and then translate these amounts 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.)
| Sullivan's Island Company | |||||||||
| Income Statement | |||||||||
| For the Year Ended December 31, 2017 | |||||||||
| LCU | rate | U.S. Dollars | |||||||
| Rent revenue | |||||||||
| Interest expense | |||||||||
| Depreciation expense | |||||||||
| Repair expense | |||||||||
| Net income | |||||||||
| rent revenue = 7200*12 | |||||||||
| interest expense = 200000*10% | |||||||||
| depeciation expense = 284000/10 | |||||||||
| Retained earnings, 1/1/17 | |||||||||
| Net income | |||||||||
| Dividends paid | |||||||||
| Retained earnings, 12/31/17 | |||||||||
| Balance Sheet | |||||||||
| December 31, 2017 | |||||||||
| cash | |||||||||
| Accounts receivable | |||||||||
| Building | |||||||||
| Accumulated depreciation | |||||||||
| Total assets | |||||||||
| Interest payable | |||||||||
| Note payable | |||||||||
| Common stock | |||||||||
| Retained earnings | |||||||||
| Translation adjustment | |||||||||
| Total liabilities and equities | |||||||||
| accounts receivable = 7200*2 | |||||||||
| interest payable = 200000*10% | |||||||||
| Calculation of Translation | |||||||||
| Net assets, 1/1/08 | |||||||||
| Change in net assets, 2008: | |||||||||
| Common stock issuance | |||||||||
| Net income | |||||||||
| Dividends paid | |||||||||
| Net assets, 12/31/08 | |||||||||
| Net assets, 12/31/08 at currentexchange rate | |||||||||
| Translation adjustment, 2008 | |||||||||
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Financial Accounting Tools For Business Decision Making
Authors: Paul D. Kimmel
4th Canadian Edition
0470155353, 978-0470155356
