Ginvold Co Prepare an Income Statement for This Subsidiary in Stickles and on January

question 58

Essay

Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2013 by acquiring all of the common stock for §50,000 Stickles, the local currency. This subsidiary immediately borrowed §120,000 on a five-year note with ten percent interest payable annually beginning on January 1, 2014. A building was then purchased for §170,000 on January 1, 2013. This property had a ten-year anticipated life and no salvage value and was to be depreciated using the straight-line method. The building was immediately rented for three years to a group of local doctors for §6,000 per month. By year-end, payments totaling §60,000 had been received. On October 1, §5,000 were paid for a repair made on that date and it was the only transaction of this kind for the year. A cash dividend of §6,000 was transferred back to Ginvold on December 31, 2013. The functional currency for the subsidiary was the Stickle (§). Currency exchange rates were as follows: $\begin{array}{ll}\text { January } 1,2013 & \S 1=\$ 2.40 \\\text { October } 1,2013 & \S 1=\$ 2.22 \\\text { Average for } 2013 & \S 1=\$ 2.28 \\\text { December } 31,2013 & \S 1=\$ 2.16\end{array}$ Prepare an income statement for this subsidiary in stickles and then translate these amounts into U.S. dollars.

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Definitions:

Movability

The quality of a negotiable instrument that ensures it is mobile and available.

Negotiable Instruments

Negotiable instruments are written orders or unconditional promises to pay a fixed amount of money on demand or at a set time to the bearer or to the order of a specified person.

Consideration

Something of value that is exchanged between parties within a contract, giving it legal validity.

Offer And Acceptance

Fundamental concepts in contract law which determine when an agreement exists between two parties. An offer is a proposal while acceptance is the agreement to that proposal.