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On December 31, Year 1, Kelly Corporation of Toronto paid 14.10 million Libyan dinars (LYD) for 100% of the outstanding common shares of Arkenu Company

On December 31, Year 1, Kelly Corporation of Toronto paid 14.10 million Libyan dinars (LYD) for 100% of the outstanding common shares of Arkenu Company of Libya. On this date, the fair values of Arkenus identifiable assets and liabilities were equal to their carrying amounts. Arkenus comparative balance sheets and Year 2 income statement are as follows:

BALANCE SHEET
At December 31
Year 2 Year 1
Current monetary assets LYD 11,693,000 LYD 9,710,000
Inventory 1,954,000 2,433,000
Plant and equipment (net) 7,161,000 7,399,000
LYD 20,808,000 LYD 19,542,000
Current monetary liabilities LYD 2,065,000 LYD 2,445,000
Bonds payable, due Dec. 31, Year 6 4,910,000 4,910,000
Common shares 5,110,000 5,110,000
Retained earnings 8,723,000 7,077,000
LYD 20,808,000 LYD 19,542,000

INCOME STATEMENT
For the year ended December 31, Year 2
Sales LYD 16,318,000
Inventory, Jan. 1 2,433,000
Purchases 10,994,000
Inventory, Dec. 31 (1,954,000 )
Depreciation expense 238,000
Other expenses 938,000
12,649,000
Net income LYD 3,669,000

Additional Information

  • Exchange rates

Dec. 31, Year 1 LYD1 = $0.52
Sep. 30, Year 2 LYD1 = $0.62
Dec. 31, Year 2 LYD1 = $0.65
Average for Year 2 LYD1 = $0.58

  • Arkenu Company declared and paid dividends on September 30, Year 2.
  • The inventories on hand on December 31, Year 2, were purchased when the exchange rate was LYD1 = $0.63.

Required:

(a) Assume that Arkenu's functional currency is the Libyan dinar:

(i) Calculate the Year 2 exchange gain or loss that would result from the translation of Arkenu's financial statements. (Enter answers in whole dollars and not in millions of dollars. Input all amounts as positive value. Omit currency symbol in your response.)

(Click to select) Exchange gain Exchange loss $

(ii) Prepare translated financial statements for Year 2. (Round the values in the "Rate" column to 2 decimal places. Loss amounts should be indicated with a minus sign. Enter answers in whole dollars and not in millions of dollars. Input all other amounts as positive values. Omit currency symbol in your response.)

Income Statement Year 2
LYD Rate Dollars
Sales 16,318,000 $
Cost of goods sold 11,473,000
Depreciation expense 238,000
Other expenses 938,000
12,649,000
Net income 3,669,000
Other comprehensive (Click to select) income loss unrealized exchange (Click to select) gain loss
(Click to select) Comprehensive loss Comprehensive income $

Retained Earnings Statement Year 2
LYD Rate Dollars
Bal. Jan. 1 7,077,000 $
Net income 3,669,000
10,746,000
Dividends 2,023,000
Bal. Dec. 31 8,723,000 $

Balance Sheet December 31, Year 2
LYD Rate Dollars
Current monetary assets 11,693,000 $
Inventory 1,954,000
Plant and equipment (net) 7,161,000
20,808,000 $
Current monetary liabilities 2,065,000
Bonds payable 4,910,000
Common shares 5,110,000
Retained earnings 8,723,000
Accumulated foreign exchange adjustments
20,808,000 $

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