Sullivan\'s Island Company began operating a subsidiary in a foreign country on

Question

Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 72,000 pounds. The subsidiary immediately borrowed 170,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 242,000 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 8,300 pounds per month. By year-end, rent payments totaling 83,000 pounds had been received, and 16,600 pounds was in accounts receivable. On October 1, 3,000 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 11,850 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: $2.80Pound January 1, 2017 October 1, 2017 December 31, 2017 Average for 2017 2.85 1 2.88 1 2.84 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 Complete this question by entering your answers in the tabs below. Income Statement Retained Earnings Balance Sheet Prepare a Income Statement. (Amounts to be deducted should be indicated by a minus sign.)

Explanation / Answer

First we will pass journal entries for transaction occured during the year

Income Statement

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Rate

Statement of Retained Earnings

Balance Sheet

Particulars Debit Credit 1)Capital 72000 pounds - 1.1..17 Cash 72000 Owner' Equity 72000 2)5 year note of 170000 pounds- 1.1.17 Cash 170000 Notes Payable 170000 3)Purchase of Building- 1.1.17 Building 242000 Cash 242000 4)Rent Revenue - 99600-31.12.17 Cash 83000 Accounts Receivable 16600 Rent Revenue 99600 5)Repair to Building-1.10.2017 Repairs Expense 3000 Cash 3000 6) Cash Dividend-31.12.17 Dividend 11850 Cash 11850 7) Interest on Borrowings-31.12.17 Interest = 170000*10% = 17000 Interest Expense 17000 Cash 17000 8) Depreciation on Building-31.12.17 Dep =242000/10 = 24200 Depreciation Expense on Bldg 24200 Accumulated Dep on Building 24200

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