Below You Will Find the Balance Sheet and Income Statement

question 27

Essay

Below you will find the balance sheet and income statement of a US Corp.'s foreign subsidiary at the end of its first year of operations. The following exchange rates were in effect during the period:
Jan. 1, 2012 - $1 = 1FC
Dec. 31, 2012 - $1.70 = 1FC
The average exchange rate during the period was $1.40=1FC. The common stock was issued on January 1, 2012.
Assuming that the foreign currency is the functional currency translate the financial statements into U.S. dollars.
$\begin{array}{c}\begin{array}{lll}\text { Balance Sheet}\\\text { As of December 31 ,}\\\text { (Amounts in Foreign Currency)}\\\text { Assets:}\\\text { Cash and cash equivalents}\\\text { Accounts Receivable}\\\text { Inventory}\\\text { Current Assets}\\\\\text { Equipment}\\\text { Less: Accumulated depreciation}\\\text { Equipment-Net}\\\text { Land}\\\\\text { Total assets}\\\\\text { Liabilities}\\\text { Accounts Payable}\\\text { Accrued Salaries Payable}\\\text { Rent Expense Payable}\\\text { Income Tax Payable}\\\text { Current Liabilities}\\\\\text { Long-term note payable}\\\text { Total Liabilities}\\\\\text { Stockholders' Equity:}\\\text { Common stock}\\\text { Retained earnings}\\\\\text { Total liabilities and stockholders' equity}\end{array}\begin{array}{lll}\\2012\\\\\\18,000 \\33,000 \\\underline{24,000} \\ 75,000 \\\\42,225 \\\underline{(1.725)}\\40,500 \\\underline{34.500} \\\\\underline{150,000} \\\\\\48,000 \\14,758 \\7,500 \\\underline{3,000}\\{73,258} \\\\\underline{ 45,000}\\{118,258}\\\\\\30,000\\\underline{1.742}\\\\ \underline{150,000} \end{array}\end{array}$
$\begin{array}{llcc} \text { Income Statement } & \\ \text {For the year ended December 31,2012 } &\\ \text {(Amounts in foreign currency) } &\\ \text {Revenues } &97,500\\ \text {Cost of goods sold } &(58,500)\\ \text {Gross Profit } &&39,000\\\underline{\text {Operating Expenses}}\\& \\ \text { Depreciation expense } &(1,725)\\ \text { Salary expense } &(24,625)\\ \text { Insurance Expense} &(1,700)\\ \text { Rent Expense } &(4,875)\\ \text { Interest Expense } &\underline{(2,520)}\\ \text { Total Operating Expenses } &&\underline{(35,445)} \\\\ \text {Income from Operations } &&3,555\\ \text {Income Tax Expense } &&\underline{(1,067)}\\\\ \text { Net income } &&\underline{2,488}\\\\ \text { Dividends paid to Common Shareholders } &747\\\end{array}$

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