Solved: Sullivan s Island Company began operating a

subsidiary in a foreign

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 an income statement, statement of retained earnings, and balance sheet for this
subsidiary in pounds and then translate these amounts into U.S. dollars.

Sullivan s Island Company began operating a subsidiary in a foreign

ANSWER
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