Problem 10-26 (LO 10-3) Sullivan\'s Island Company began operating a subsidiary
ID: 2583982 • Letter: P
Question
Problem 10-26 (LO 10-3) Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 78,000 pounds. The subsidiary immediately borrowed 185,000 pounds on a five-year note with 7 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 263,000 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 7,000 pounds per month. By year-end, rent payments totaling 70,000 pounds had been received, and 14,000 pounds was in accounts receivable. On October 1, 3.300 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 4,800 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 anuary 1, 2017 2.991 Pound October 1, 2017 December 31, 2017 Average for 2017 2.95 1 .981 2.941 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.Explanation / Answer
INCOME STATEMENT
REVENUE
RENT RECIEVED 84,000 POUNDS
NET REVENUE 84000 POUNDS
EXPENSES:
REPAIRS 3300 POUNDS
DEPERICIATION* 26,300 POUNDS
EXPENSES 29,600 POUNDS
NET INCOME (84000-29,600) POUNDS =54,400 POUNDS
STATEMENT OF RETAINED EARNINGS
BALANCE SHEET FOR THIS SUBSIDIARY
CURRENT ASSETS
ACCOUNTS RECIEVABLE 5
14,000
TOTAL (B) 3,12,600
WORKING NOTES:
1. SHARE CAPITAL (AS GIVEN IN QUESTION) 78,000 POUNDS
2.RESERVE AND SURPLUS
RETAINED EARNINGS AS CALCULATED IN ABOVE STATEMENTS 49,600 POUNDS
3.LONG TERM BORROWINGS
(AS GIVEN IN QUESTION) 185,000 POUNDS
4.LONG TERM ASSETS
BUILDING 2,63,000 POUNDS
LESS:DEPERCIATION(2,63,000/10) (26,300 POUNDS) 2,36,700 POUNDS
(AMOUNT/USEFUL LIFE)
5.CURRENTS ASSETS :A/C RECIEVABLE(GIVEN) 14,000 POUNDS
6.CASH
RENT RECIEVED 70000POUNDS
LESS:CASH DIVIDEND PAID (4800 POUNDS)
REPAIR EXPENSES PAID (3300 POUNDS) 61,900 POUNDS
TRANSLATIONS OF POUND INTO US DOLLORS
PARTICULARS AMOUNT (POUNDS) NET INCOME 54,400 LESS:CASH DIVIDEND PAID (4800) RETAINED EARNING AT THE END 49,600
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