\"F\" Company organized and began operating a subsidiary in a foreign country on

Question

"F" Company organized and began operating a subsidiary in a foreign country on January 1, 2015, by investing LCU 74,000. This subsidiary immediately borrowed LCU 185,000 on a 5-year note with 9% interest payable annually beginning on January 1, 2016. The subsidiary then purchased for LCU 259,000 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 3 years to a group of local doctors for LCU 6,000 per month. By year-end, paymenets totaling LCU 60,000 had been received. On October 1, LCU 4,100 was paid for a repair made on that date. The subsidiary transferred a cash dividend of LCU 5,600 back to "F" on December 31, 2015. The functional currency for the subsidiary is the LCU. Currency exchange rates for 1 LCU are:

January 1, 2015 $2.60 1 LCU October 1, 2015 $2.45 1 Average for 2015 $2.50 1 December 31, 2015 $2.40 1

Explanation / Answer

We need to determine the net income in order to calculate the cash flow from operating activities. The net income is calculated as follows:

___________

The cash flow statement is given below:

LCU Exchange Rate Dollars Rent Revenue 72,000 2.5 180,000 Interest Expense -16,650 2.5 -41,625 Depreciation Expense -25,900 2.5 -64,750 Repair Expense -4,100 2.45 -10,045 Net Income 25,350 $63,580

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