Sullivan’s Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 60,000 pounds. The subsidiary immediately borrowed 140,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 200,000 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 8,000 pounds per month. By year-end, rent payments totaling 80,000 pounds had been received, and 16,000 pounds was in accounts receivable. On October 1, 4,000 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 12,000 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 . . . . . $2.00 = 1 pound October 1, 2017 . . . . . 2.05 = 1 December 31, 2017 . . 2.08 = 1 Average for 2017 . .. . . 2.04 = 1 Prepare a statement of cash flows in pounds for Sullivan’s Island Company’s foreign subsidiary and then translate these amounts into U.S. dollars.
Sullivan’s Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 60,000 pounds. The subsidiary immediately borrowed 140,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018.
The subsidiary then purchased for 200,000 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 8,000 pounds per
month. By year-end, rent payments totaling 80,000 pounds had been received, and 16,000 pounds was in accounts receivable. On October 1, 4,000 pounds was paid for a repair made to the building.
The subsidiary transferred a cash dividend of 12,000 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 . . . . . $2.00 = 1 pound
October 1, 2017 . . . . . 2.05 = 1
December 31, 2017 . . 2.08 = 1
Average for 2017 . .. . . 2.04 = 1
Prepare a statement of cash flows in pounds for Sullivan’s Island Company’s foreign subsidiary and then translate these amounts into U.S. dollars.
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