Question

Fenwicke Company began operating a subsidiary in a foreign country on January 1, 2011, by acquiring all of its common stock for LCU 40,000, which was equal to fair value. This subsidiary immediately borrowed LCU 100,000 on a five-year note with 10 percent interest payable annually beginning on January 1, 2012. 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. The subsidiary rents the building for three 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 October 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 December 31, 2011. The functional currency for the subsidiary is the LCU. Currency exchange rates for 1 LCU follow:
January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . $2.00 = LCU 1
October 1, 2011 . . . . . . . . . . . . . . . . . . . . . . 1.85 = 1
Average for 2011 . . . . . . . . . . . . . . . . . . . . . .1.90 = 1
December 31, 2011 . . . . . . . . . . . . . . . . . . . . 1.80 = 1
Prepare an income statement, statement of retained earnings, and balance sheet for this subsidiaryin LCU and then translate these amounts into U.S. dollars.



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  • CreatedOctober 04, 2014
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