Fenwicke Company organized and began operating a subsidiary in a foreign country

Question

Fenwicke Company organized and began operating a subsidiary in a foreign country on January 1, 2015, by investing LCU 76,000. This subsidiary immediately borrowed LCU 190,000 on a five-year note with 10 percent interest payable annually beginning on January 1, 2016. The subsidiary then purchased for LCU 266,000 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 6,500 per month. By year-end, payments totaling LCU 65,000 had been received. On October 1, LCU 4,200 was paid for a repair made on that date. The subsidiary transferred a cash dividend of LCU 5,700 back to Fenwicke on December 31, 2015. The functional currency for the subsidiary is the LCU. Currency exchange rates for 1 LCU follow: January 1, 2015 $ 2.70 = 1 LCU October 1, 2015 2.50 = 1 Average for 2015 2.60 = 1 December 31, 2015 2.50 = 1 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.

Explanation / Answer

Part 1)

The income statement is given as follows:

________

Part 2)

The statement of retained earnings is given below:

________

Part 3)

The balance sheet is provided as follows:

The value of translation adjustment is calculated with the use of following table:

Fenwicke Company's Subsidiary Income Statement LCU Exchange Rate Dollars Rent Revenue 78,000 2.6 202,800 Interest Expense -19,000 2.6 -49,400 Depreciation Expense -26,600 2.6 -69,160 Repair Expense -4,200 2.5 -10,500 Net Income 28,200 $73,740

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.