Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2011

Question

Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2011 by acquiring all of the common stock for §50,000. This subsidiary immediately borrowed §120,000 on a five-year note with ten percent interest payable annually beginning on January 1, 2012. A building was then purchased for §170,000 on January 1, 2011. 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. A cash dividend of §6,000 was transferred back to Ginvold on December 31, 2011. The functional currency for the subsidiary was the stickle. Currency exchange rates were as follows:

January 1, 2011 - §1 = $2.40

October 1, 2011 - §1 = $2.22

December 31, 2011 - §1 = $2.28

Average for 2011 - §1 = $2.16

1. Prepare an income statement for this subsidiary in stickles and then translate these amounts to U.S. dollars.

2. Prepare a statement of retained earnings for this subsidiary in stickles and then translate these amounts into U.S. dollars.

3. Prepare a balance sheet for this subsidiary in stickles and then translate these amounts into U.S. dollars.

4. Prepare a statement of cash flows for this subsidiary in stickles and then translate these amounts into U.S. dollars

Explanation / Answer

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