Ginvold Co

question 12

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:
Prepare a statement of retained earnings for this subsidiary in stickles and then translate the amounts into U.S. dollars.

---

Definitions:

Leverage

Refers to the use of borrowed funds to finance the acquisition of assets, aiming to increase the returns to equity shareholders.

Return On Assets Ratio

A financial metric measuring how efficiently a company generates profit from its assets, calculated as net income divided by total assets.

Return On Common Shareholders' Equity Ratio

A financial metric that measures the profitability attributable to shareholders by comparing net income to common equity.

Debt To Total Assets Ratio

A financial ratio that measures the percentage of a company's assets financed by creditors through debt, indicating financial leverage.