The functional currency for the subsidiary

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Reference no: EM131346181

Fenwicke Company organized and began operating a subsidiary in a foreign country on Jan. 1, 2015, by investing LCU 40,000. This subsidiary immediately borrowed LCU 100,000 on a 5-year note with 10 percent interest payable annually beginning on Jan 1, 2016. The subsidiary then purchased for LCU 140,000 a building that had a 10-year anticipated life and no salvage value and is to be depreciated using the straight-line method. Also on Jan 1, the subsidiary rents the building for 3 years to a group of local doctors for LCU 5,000 per month. By year end, payments totaling LCU 50,000 had been received on Oct. 1, LCU 4,000 was paid for a repair made on that date. The subsidiary transferred a cash dividend of LCU 5,000 back to Fenwicke on Dec. 31, 2015. The functional currency for the subsidiary is the LCU. Currency exchange rates for 1 LCU follow:

Jan 1, 2015...........$2.00 = 1 LCU

Oct. 1, 2015...........$1.85 = 1

Average for 2015........$1.90 = 1

Dec. 31, 2015...........$1.80 = 1

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

Please answer the following:

Fenwicke Company Subsidiary

Income Statement

LCU U.S. dollars

Rent Revenue 60,000 x 1.90 A $114,000

Interest Expense

Depreciation Expense

Repair Expense

Net Income

Statement of Retained Earnings

LCU U.S. dollars

Retained earnings 1/1 0 0

Net Income

Dividends paid Retained Earnings (12/31)

Balance Sheet

LCU U.S. dollars

Cash

Account Receivable

Building

Accumulated depreciation

Total assets

Interest payable

Note payable

common stock

Retained Earnings

Translation adjustment

Total liabilities and equities

Reference no: EM131346181

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