Problem:
Fenwicke Company organized and began operating a subsidiary in a foreign country on January 1, 2015, by investing LCU 56,000. This subsidiary immediately borrowed LCU 140,000 on a five-year note with 6 percent interest payable annually beginning on January 1, 2016. The subsidiary then purchased for LCU 196,000 a building that had a 10-year anticipated life and no salvage value and is to be depreciated using the straight-line method. Also on January 1, the subsidiary rents the building for three years to a group of local doctors for LCU 6,500 per month. By year-end, payments totaling LCU 65,000 had been received. On October 1, LCU 3,200 was paid for a repair made on that date. The subsidiary transferred a cash dividend of LCU 4,700 back to Fenwicke on December 31, 2015. The functional currency for the subsidiary is the LCU. Currency exchange rates for 1 LCU follow:
- January 1, 2015$2.80 =1 LCU
- October 1, 2015 2.40 =1
- Average for 2015 2.65 =1
- December 31, 2015 2.50 =1
Problem:
Question: Prepare a statement of cash flows in LCU for Fenwicke's foreign subsidiary and then translate these amounts into U.S. dollars.
Note: Provide support for your rationale.