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

Question

15. Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 by acquiring all of the common stock for 50.000 Stickles, the local currency. This subsidiary immediately borrowed § 120,000 on a five-year note with ten percent interest payable annually beginning on January 1 , 2014 . A building was then purchased for § 170,000 on January 1 , 2013. 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 , ,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 31,2013. The functional currency for the subsidiary was the Stickle (8). Currency exchange rates were as follows: January 1, 2013 October 1,2013 Average for 2013 December 31, 2013 51-s240 51-S2.22 51 = $2.28 $1-S2.16 Prepare a balance sheet for this subsidiary in stickles and then translate the amounts into U.S dollars.

Explanation / Answer

1) As the Question is how do we get stickles, this is known by preparing income statement and different accounts.

Income Statement of Subsidiary for the year ended Dec 31,2013 (Fig. in Stickles)

Statement showing Cash Balance at the end of year 2013 (Fig. in Stickles)

Balance sheet of Ginvold co.'s subsidiary as on Dec 31,2013 (Fig. in Stickles)

(i) As nothing is mentioned in the question about payment of interest on notes, it is assumed that interest on notes is payable as on December 31,2013.

Rent Income (6,000 per month*12) 72,000 Less: Interest Expense (120,000*10%) (12,000) Less: Depreciation on Building (170,000/10years) (17,000) Less: Repairs (5,000) Net Income 38,000 Less: Dividend Paid (6,000) Balance Transferred to retained earnings 32,000

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