\"F\" Company organized and began operating a subsidiary in a foreign country on
ID: 2474721 • Letter: #
Question
"F" Company organized and began operating a subsidiary in a foreign country on January 1, 2015, by investing LCU 90,000. This subsidiary immediately borrowed LCU 225,000 on a five-year note with 5% interest payable annually beginning on January 1, 2016. The subsidiary then purchased for LCU 315,000 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 5,000 per month. By year-end, payments totaling LCU 50,000 had been received. On October 1, LCU 4,900 was paid for a repair made on that date. The subsidiary transferred a cash dividend of LCU 3,200 back to "F" 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.
January 1, 2015 $2.50 1 LCU October 1, 2015 $2.10 1 Average for 2015 $2.20 1 December 31, 2015 $1.90 1Explanation / Answer
Calculate the rent to be received:
Rent=(5000 LCU per month *12)*2.20=132,000
Calculate the interest expense:
225000*5%*2.20=$24750
Calculate depreciation expense:
(315000LCU/10)*2.20=$69300
Calculate repair expense:
4900 LCU*2.1=10290
Calculate net income:
Particulars
LCU
$
Rent revenue
60000
132000
Less:
Interest expense
11250
24750
Depreciation expense
31500
69300
Repair expense
3200
10290
Net income
14050
27660
In order to calculate retained earnings there is need for the net income and the dividend paid.
Calculate dividend paid:
3200*1.90=6080
Calculate retained earnings:
Particulars
LCU
$
Net income
14050
27660
Less:
Dividend paid
3200
6080
Retained earnings
10850
21580
Calculate cash:
Cash= (collected rent-repairs-dividend) LCU*current exchange rate
= (50000-4900-3200)LCU*1.90
= $79,610
Accounts receivable = (60000-50000)*1.9=19000
Buildings=315000LCU*1.9=598500
Accumulated depreciation=31500*1.9=59,850
Interest payable=11250 LCU*1.9=21375
Note payable=225,000LCU*1.90=427500
Common stock=90000*2.5=225000
Retained earnings
LCU
Exchange rate
US dollars
Common stock
90000
2.5
225000
Net income
14050
27660
Dividends paid
(3200)
1.9
(6080)
Ending net assets
100850
246,580
Value of ending net assets
100850
1.9
191615
Translation adjustment
54965
Balance sheet
LCU
Exchange rate
US dollars
Cash
41900
79610
Accounts receivable
10000
19000
Building
315000
598500
depreciation
(31500)
(59850)
Total Assets
335400
637,760
Common stock
90000
225000
Interest payable
11250
21375
Note payable
225000
427500
Retained earnings
10850
21580
Transactional adjustment
54965
Liabilities and equity
637760
Particulars
LCU
$
Rent revenue
60000
132000
Less:
Interest expense
11250
24750
Depreciation expense
31500
69300
Repair expense
3200
10290
Net income
14050
27660
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.