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Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by...

Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 100,000 pounds. The subsidiary immediately borrowed 240,000 pounds on a five-year note with 6 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 340,000 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 9,000 pounds per month. By year-end, rent payments totaling 90,000 pounds had been received, and 18,000 pounds was in accounts receivable. On October 1, 4,400 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 11,500 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: January 1, 2017 $ 2.40 = 1 Pound October 1, 2017 2.45 = 1 December 31, 2017 2.48 = 1 Average for 2017 2.44 = 1 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.

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Answer #1

Income statement

Particulars POUNDS USD

REVENUE 108000 263520

INTEREST PAYMENT 14400 35712

REPAIR 4400 10780

Profit 89200 217648

2. STATEMENT OF RETAINED EARNING

Profit 89200 217648

Dividend 11500 -28520

Exxhange diff. -15632

Reyained aerning 77700 173496

3. Balance sheet

Liabilities

Share capital 100000 240000

Retained earning 77700 173496

Borrowing 240000 595200

Interest payable 14400 35712

Total 432100 1044408

Assets

Building 340000 816000

Rent rec. 18000 44640

Cash/ bank 74100 183768

Total 432100 1044408

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