Sullivan's Island Company began operating a subsidiary in a foreign country on January 1, 2017, by investing capital in the amount of 84,000 pounds. The subsidiary immediately borrowed 200,000 pounds on a five-year note with 10 percent interest payable annually beginning on January 1, 2018. The subsidiary then purchased for 284,000 pounds a building that had a 10-year expected life and no salvage value and is to be depreciated using the straight-line method. Also on January 1, 2017, the subsidiary rented the building for three years to a group of local attorneys for 7,200 pounds per month. By year-end, rent payments totaling 72,000 pounds had been received, and 14,400 pounds was in accounts receivable. On October 1, 3,600 pounds was paid for a repair made to the building. The subsidiary transferred a cash dividend of 5,100 pounds back to Sullivan's Island Company on December 31, 2017. The functional currency for the subsidiary is the pound. Currency exchange rates for 1 pound follow: January 1, 2017 $ 2.10 = 1 Pound
October 1, 2017 2.15 = 1
December 31, 2017 2.18 = 1
Average for 2017 2.14 = 1
Prepare an income statement, statement of retained earnings, and balance sheet for this subsidiary in pounds and then translate these amounts into U. S. dollars.

Sullivan's Island Company

a. Sullivan's Island Company Income Statement for the year ended December 31, 2017:

                                             Pounds            US $

Rent Revenue                      86,400           184,896

Repairs to building                3,600               7,704

Depreciation - Building       28,400             60,776

Interest on Notes                20,000            42,800

Net Income                          34,400              73,616

b. Sullivan's Island Company Statement of Retained Earnings for the year ended December 31, 2017:

                                             Pounds            US $

Net Income                          34,400              73,616

Dividends                               5,100               10,914

Retained Earnings             29,300             62,702

c.  Sullivan's Island Company Balance Sheet as of December 31, 2017:

                                             Pounds            US $

Assets:

Cash                                     63,300           138,102

Rent Receivable                   14,400             31,392

Building                             284,000         596,400

Less Depreciation             -28,400           -60,776

Total Assets                     333,300            705,118

Liabilities:

Notes Interest Payable     20,000             42,800

Notes Payable                200,000           420,000

Common Stock                 84,000            176,400

Retained Earnings            29,300             62,702

Foreign Exchange Translation Gain            3,216

Total Liabilities + Equity 333,300             705,118

Explanation:

a) Data and Calculations:

Currency exchange rates for 1 pound follow:

January 1, 2017 $    2.10 = 1 Pound

October 1, 2017       2.15 = 1

December 31, 2017 2.18 = 1

Average for 2017    2.14 = 1

Cash Account:

                                             Pounds            US $

Jan. 1 Common Stock          84,000           176,400

Jan. 1 Notes Payable         200,000         420,000

Jan. 1 Building                   -284,000       -596,400

Oct. 1 Building Repairs          -3600             -7,740

Dec. 31 Rent received         72,000          156,960

Dec. 31 Dividends                 -5,100              -11,118

Dec. 31 Balance                 63,300           138,102

b) Sullivan recorded some unrealized foreign exchange translation gain of $3,216.  This is due to translation differences.

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