Charles Edward Company established a subsidiary in a foreign country on January 1, 2016, by investing FC 3,200,000 when the exchange rate was FC 3.5 to one U.S. dollar. No income was earned and no dividends were paid during that year, nor the next. In 2018, Charles Edward negotiated a bank loan of FC 1,000,000 on January 5, and purchased plant and equipment in the amount of FC 4,800,000 on January 8, 2018. No dividends were paid during 2018. Additional exchange rates per $1 during the year 2018 follow:
January 1-31, 2018 |
FC 3.15 |
Average 2018 |
FC 3.25 |
December 31, 2018 |
FC 3.30 |
The foreign subsidiary’s income statement for 2018 and balance sheet at December 31, 2018, follow:
INCOME STATEMENT |
||
For the Year Ended December 31, 2018 |
||
FC (in thousands) |
||
Sales |
FC |
13,5000 |
Selling expense |
(675) |
|
Depreciation expense |
(1,200) |
|
Income before tax |
11,625 |
|
Income taxes |
(4,000) |
|
Net income |
7,625 |
|
Retained earnings, 1/1/2018 |
0 |
|
Retained earnings, 12/31/2018 |
FC |
7,625 |
BALANCE SHEET |
||
As of December 31, 2018 |
||
FC (in thousands) |
||
Cash |
FC |
8,500 |
Property, plant & equipment |
4,800 |
|
Less: accumulated depreciation |
(1,200) |
|
Total assets |
FC |
12,100 |
Current liabilities |
FC |
275 |
Long-term debt |
1,000 |
|
Contributed capital |
3,200 |
|
Retained earnings |
7,625 |
|
Total liabilities and stockholders' equity |
FC |
12,100 |
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