Fenwicke Company organized and began operating a subsidiary in a foreign country
ID: 2479970 • Letter: F
Question
Fenwicke Company organized and began operating a subsidiary in a foreign country on January 1, 2015, by investing LCU 58,000. This subsidiary immediately borrowed LCU 145,000 on a five-year note with 7 percent interest payable annually beginning on January 1, 2016. The subsidiary then purchased for LCU 203,000 a building that had a 10-year anticipated life and no salvage value and is to be depreciated using the straight-line method. Also on January 1, the subsidiary rents the building for three years to a group of local doctors for LCU 7,000 per month. By year-end, payments totaling LCU 70,000 had been received. On October 1, LCU 3,300 was paid for a repair made on that date. The subsidiary transferred a cash dividend of LCU 4,800 back to Fenwicke on December 31, 2015. The functional currency for the subsidiary is the LCU. Currency exchange rates for 1 LCU follow:
Prepare an income statement, statement of retained earnings, and balance sheet for this subsidiary in LCU and then translate these amounts into U.S. dollars. (Amounts to be deducted should be indicated by a minus sign.)
January 1, 2015 $ 2.90 = 1 LCU October 1, 2015 2.40 = 1 Average for 2015 2.70 = 1 December 31, 2015 2.50 = 1Prepare an income statement, statement of retained earnings, and balance sheet for this subsidiary in LCU and then translate these amounts into U.S. dollars. (Amounts to be deducted should be indicated by a minus sign.)
Explanation / Answer
Answer
Note
Fenwicke Company Subsidiary Income Statement LCU U.S. Dollars Rent revenue (12*7000) 84,000 *2.70 $2,26,800 Interest expense (145000*7%) -10150 *2.70 ($27,405) Depreciation expense (203000/10) -20300 *2.70 ($54,810) Repair expense -3300 *2.40 ($7,920) Net income 50,250 $1,36,665 Statement of Retained Earnings LCU U.S. Dollars Retained earnings 01/01 0 -0- -0- Net income 50,250 $1,36,665 Dividends paid -4,800 *2.50 ($12,000) Retained earnings, 12/31 45,450 $1,24,665 Balance Sheet LCU U.S. Dollars Cash (Balancing Figure) 258600-14000-(203000-20300) 61900 *2.50 $1,54,750 Accounts receivable (7000*12)-70000 14000 *2.50 $35,000 Building 203000 *2.50 $5,07,500 Accumulated depreciation -20300 *2.50 ($50,750) Total assets 258600 $6,46,500 Interest payable 10150 *2.50 $25,375 Note payable 145000 *2.50 $3,62,500 Common stock 58000 *2.90 $1,68,200 Retained earnings (Statement of retained Earnings) 45450 $1,24,665 Translation adjustment (Note) ($34,240) Total liabilities and equities 258600 $6,46,500Related Questions
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