Refer to Problem 11-1. All of the facts and data given in the problem are the same except that PMI only purchased 40% of the outstanding ordinary shares of Sandora for US$6,400,000. Additional Information

• PMI's 40% in Sandora gave it significant influence over Sandora's key operating and financial policies.

• PMI uses the equity method to account for its investment in Sandora.

• The carrying amounts of Sandora's net assets were equal to fair values on December 31, Year 1, except for the manufacturing plant which had a fair value in excess of carrying amount of US$600,000 and a remaining useful life of 15 years. A goodwill impairment loss of US$500,000 on PMI's 40% share of Sandora's goodwill occurred evenly throughout Year 12.

Required:

(a) Assume that Sandora's functional currency is the Canadian dollar. Using the translated financial statements prepared in Problem 11-1 part (a), prepare PMI's journal entries pertaining to its investment in Sandora account for Years 1 and 2. 

(b) Assume that Sandora's functional currency is the US dollar. Using the translated financial statements prepared in Problem 11-1 part (b), prepare PMI's journal entries pertaining to its investment in Sandora account for Years 1 and 2.

Problem 11-1:

On December 31, Year 1, Precision Manufacturing Inc. (PMI) of Edmonton purchased 100% of the outstanding ordinary shares of Sandora Corp. of Flint, Michigan. Sandora's comparative statement of financial position and Year 2 income statement are as follows: 

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STATEMENT OF FINANCIAL POSITION At December 31 Year 1 Year 2 Plant and equipment (net) Inventory Accounts receivable US$ 6,600,000 US$ 7,300,000 6,300,000 5,700,000 6,100,000 4,700,000 Cash 780,000 US$19,180,000 900,000 US$19,200,000 Ordinary shares Retained earnings Bonds payable-due Dec. 31, Year 6 Current liabilities US$ 5,000,000 US$ 5,000,000 7,480,000 4,800,000 7,000,000 4,800,000 1,900,000 2,400,000 US$19,180,000 US$19,200,000 INCOME STATEMENT For the year ended December 31, Year 2 Sales US$30,000,000 Cost of purchases 23,400,000 Change in inventory 600,000 700,000 Depreciation expense Other expenses 3,800,000 28,500,000 Profit US$ 1,500,000 Additional Information • Exchange rates Dec. 31, Year 1 US$1 = CDN$1.10 Sep. 30, Year 2 US$1 = CDN$1.07 Dec. 31, Year 2 US$1 = CDN$1.05 Average for Year 2 US$1 = CDN$1.08