Sullivan’s Island Company began operating a subsidiary in a foreign country on January 1, 2020, by investing capital in the amount of 60,000 pounds. The subsidiary immediately borrowed 140,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2021. 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, 2020, the subsidiary rented the building for three years to a group of local attorneys for 8,000 pounds per month. By year-end, rent payments totaling 80,000 pounds had been received, and 16,000 pounds was in accounts receivable. On October 1, 2020, 4,000 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 12,000 pounds back to Sullivan’s Island Company on December 31, 2020. The functional currency for the subsidiary is the pound. Currency exchange rates for 1 pound follow: January 1, 2020 $2.00 = 1 pound October 1, 2020 2.05 = 1 December 31, 2020 2.08 = 1 Average for 2020 2.04 = 1 Prepare an income statement, statement of retained earnings, and balance sheet for this subsidiary in pounds, and then translate these amounts into U.S. dollars
Sullivan’s Island Company began operating a subsidiary in a foreign country on January 1, 2020, by investing capital in the amount of 60,000 pounds. The subsidiary immediately borrowed 140,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2021. 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
|
January 1, 2020 |
$2.00 = 1 pound |
|
October 1, 2020 |
2.05 = 1 |
|
December 31, 2020 |
2.08 = 1 |
|
Average for 2020 |
2.04 = 1 |
Prepare an income statement, statement of retained earnings, and balance sheet for this subsidiary in pounds, and then translate these amounts into U.S. dollars.
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