Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2018
ID: 2601530 • Letter: G
Question
Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2018 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, 2019. A building was then purchased for §170,000 on January 1, 2018. 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, §5,000 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, 2018. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows:
January 1,2018 1= $2.40
1-Oct-18 1= $ 2.22
Average for 2018 1= $2.28
31-Dec-18 1= $2.16 1.
1. Prepare an income statement for this subsidiary in stickles and then translate these amounts into U.S. dollars.
2. Prepare a statement of retained earnings for this subsidiary in stickles and then translate the amounts into U.S. dollars.
3. Prepare a balance sheet for this subsidiary in stickles and then translate the amounts into U.S. dollars.
Explanation / Answer
Income Statement for the Year Ended December 31, 2013
Particulars
Stickles
Rate
U.S. Dollars
Rent revenue
72,000
$2.28
$164,160
Less : Interest Expense
- 12,000
$2.28
($27,360)
Less : Depreciation Exp. (170000/10)
- 17,000
$2.28
($38,760)
Less : Repair Exp.
- 5,000
$2.22
($11,100)
Net Income
38,000
$86,940
Statement of Retained Earnings for the Year Ended December 31, 2013
Particulars
Stickles
Rate
U.S. Dollars
Retained earnings, 1/1/13
0
$0
Net income
38,000
$86,940
Dividend paid
-6,000
$2.16
-$12,960
Retained earnings, 12/31/13
32,000
$73,980
Balance Sheet as on December 31, 2013
Stickles
Rate
U.S. Dollars
Assets:
Cash
49,000
2.16
$105,840
Accounts Receivable
12,000
2.16
$25,920
Building
170,000
2.16
$367,200
Accumulated Depreciation
- 17,000
2.16
-$36,720
Total Assets
214,000
$462,240
Liability:
Interest Payable
12,000
2.16
$25,920
Notes Payable
120,000
2.16
$259,200
Common Stock
50,000
2.4
$120,000
Retained Earnings
32,000
$73,980
Translation Adjustments
-$16,860
Total Liabilities and Shareholders' equity
214,000
$462,240
Calculation of Translation Adjustments
Stickles
U.S. Dollars
Net Assets
-
0
Change in Net Assets
Common Stock issuance
50,000
2.4
$120,000
Net Income
38,000
As caclulated in Income Statement
86,940
Dividends paid
- 6,000
2.16
-$12,960
Net Assets
82,000
$193,980
Net Assets at current exchange rate
82,000
2.16
$177,120
Translation Adjustment
-$16,860
Income Statement for the Year Ended December 31, 2013
Particulars
Stickles
Rate
U.S. Dollars
Rent revenue
72,000
$2.28
$164,160
Less : Interest Expense
- 12,000
$2.28
($27,360)
Less : Depreciation Exp. (170000/10)
- 17,000
$2.28
($38,760)
Less : Repair Exp.
- 5,000
$2.22
($11,100)
Net Income
38,000
$86,940
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