On December 31, Year 1, Kelly Corporation of Toronto paid 14.00 million Libyan dinars (LYD) for 100% of the outstanding common shares of Arkenu Company of Libya. On this date, the fair values of Arkenu's identifiable assets and liabilities were equal to their carrying amounts. Arkenu's comparative balance sheets and Year 2 income statement are as follows: BALANCE SHEET At December 31 Year 2 Current monetary assets LYD11,610,000 Inventory 1,940,000 Plant and equipment (net) 7,110,000 LYD20, 660,000 Current monetary liabilities LYD 2,050,000 Bonds payable, due Dec. 31, Year 6 4,900,000 Common shares 5,100,000 Retained earnings 8,610,000 LYD20,660,000 Year 1 LYD 9,700,000 2,430,000 7,390,000 LYD19,520,000 LYD 2,442,000 4,900,000 5,100,000 7,078,000 LYD19,520,000 INCOME STATEMENT For the year ended December 31, Year 2 Sales LYD16,290,000 Inventory, Jan. 1 2,430,000 Purchases 10,980,000 Inventory, Dec. 31 (1,940,000) Depreciation expense 280,000 Other expenses 1,103,000 12,853,000 Net income LYD 3,437,000 Additional Information Exchange rates Dec. 31, Year 1 Sep. 30, Year 2 Dec. 31, Year 2 Average for Year 2 LYD1 = $0.52 LYD1 = $0.62 LYD1 = $0.65 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 Canadian dollar: (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) $ (ii) Prepare translated financial statements for Year 2. (Round the values in the "Rate" column to 2 decimal places. Exchange gain, if any, should be entered as positive value, and Exchange loss, if any, should be entered 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 Cost of goods sold Depreciation expense Other expenses (Click to select) 16, 290,000 11,470,000 280,000 1,103,000 12,853,000 3,437,000 Net income $ Rate Dollars $ Retained Earnings Statement Year 2 LYD Bal. Jan. 1 7,078,000 Net income 3,437,000 10,515,000 Dividends 1,905,000 Bal. Dec. 31 8,610,000 $ Rate Dollars $ Balance Sheet December 31, Year 2 LYD Current monetary assets 11,610,000 Inventory 1,940,000 Plant and equipment (net) 7,110,000 20,660,000 Current monetary 2,050,000 liabilities Bonds payable 4,900,000 Common shares 5,100,000 Retained earnings 8,610,000 $ $ X (b) 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) (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.) - Dollars $ Income Statement Year 2 LYD Rate Sales 16,290,000 Cost of goods sold 11,470,000 Depreciation expense 280,000 Other expenses 1,103,000 12,853,000 Net income 3,437,000 Other comprehensive (Click to select) unrealized exchange |(Click to selec |(Click to select) V $ - Year 2 Rate Dollars $ Retained Earnings Statement LYD Bal. Jan. 1 7,078,000 Net income 3,437,000 X 10,515,000 Dividends 1,905,000 Bal. Dec. 31 8,610,000 $ Balance Sheet December 31, Year 2 Rate Dollars $ Current monetary assets Inventory Plant and equipment (net) LYD 11,610,000 x 1,940,000 x 7,110,000 x 20,660,000 2,050,000 x 4,900,000 x 5,100,000 x 8,610,000 $ Current monetary liabilities Bonds payable Common shares Retained earnings Accumulated foreign exchange adjustments 20,660,000 (iii) Calculate the amount of goodwill that would appear on the December 31, Year 2, consolidated balance sheet if there was an impairment loss of LYD50,000 during the year. (Enter answers in whole dollars and not in millions of dollars. Input all other amounts as positive values. Omit currency symbol in your response.) Goodwill - December 31, Year 2 $ (iv) Calculate the amount of the exchange gain or loss that would appear in Kelly's Year 2 consolidated 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) $ (c) Which functional currency would Arkenu prefer to use if it wants to show the following? (i) The strongest solvency position for the company Functional currency is Canadian dollar. O Functional currency is Libyan dinar and accumulated foreign exchange adjustments (AFEA) are included in equity. O Functional currency is Libyan dinar and AFEA are excluded from equity. (ii) The best return on shareholders' equity Functional currency is Canadian dollar. Functional currency is Libyan dinar and other comprehensive income (OCI) is included in income and AFEA included in equity. Functional currency is Libyan dinar and OCI is excluded from income and AFEA are excluded from equity. On December 31, Year 1, Kelly Corporation of Toronto paid 14.00 million Libyan dinars (LYD) for 100% of the outstanding common shares of Arkenu Company of Libya. On this date, the fair values of Arkenu's identifiable assets and liabilities were equal to their carrying amounts. Arkenu's comparative balance sheets and Year 2 income statement are as follows: BALANCE SHEET At December 31 Year 2 Current monetary assets LYD11,610,000 Inventory 1,940,000 Plant and equipment (net) 7,110,000 LYD20, 660,000 Current monetary liabilities LYD 2,050,000 Bonds payable, due Dec. 31, Year 6 4,900,000 Common shares 5,100,000 Retained earnings 8,610,000 LYD20,660,000 Year 1 LYD 9,700,000 2,430,000 7,390,000 LYD19,520,000 LYD 2,442,000 4,900,000 5,100,000 7,078,000 LYD19,520,000 INCOME STATEMENT For the year ended December 31, Year 2 Sales LYD16,290,000 Inventory, Jan. 1 2,430,000 Purchases 10,980,000 Inventory, Dec. 31 (1,940,000) Depreciation expense 280,000 Other expenses 1,103,000 12,853,000 Net income LYD 3,437,000 Additional Information Exchange rates Dec. 31, Year 1 Sep. 30, Year 2 Dec. 31, Year 2 Average for Year 2 LYD1 = $0.52 LYD1 = $0.62 LYD1 = $0.65 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 Canadian dollar: (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) $ (ii) Prepare translated financial statements for Year 2. (Round the values in the "Rate" column to 2 decimal places. Exchange gain, if any, should be entered as positive value, and Exchange loss, if any, should be entered 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 Cost of goods sold Depreciation expense Other expenses (Click to select) 16, 290,000 11,470,000 280,000 1,103,000 12,853,000 3,437,000 Net income $ Rate Dollars $ Retained Earnings Statement Year 2 LYD Bal. Jan. 1 7,078,000 Net income 3,437,000 10,515,000 Dividends 1,905,000 Bal. Dec. 31 8,610,000 $ Rate Dollars $ Balance Sheet December 31, Year 2 LYD Current monetary assets 11,610,000 Inventory 1,940,000 Plant and equipment (net) 7,110,000 20,660,000 Current monetary 2,050,000 liabilities Bonds payable 4,900,000 Common shares 5,100,000 Retained earnings 8,610,000 $ $ X (b) 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) (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.) - Dollars $ Income Statement Year 2 LYD Rate Sales 16,290,000 Cost of goods sold 11,470,000 Depreciation expense 280,000 Other expenses 1,103,000 12,853,000 Net income 3,437,000 Other comprehensive (Click to select) unrealized exchange |(Click to selec |(Click to select) V $ - Year 2 Rate Dollars $ Retained Earnings Statement LYD Bal. Jan. 1 7,078,000 Net income 3,437,000 X 10,515,000 Dividends 1,905,000 Bal. Dec. 31 8,610,000 $ Balance Sheet December 31, Year 2 Rate Dollars $ Current monetary assets Inventory Plant and equipment (net) LYD 11,610,000 x 1,940,000 x 7,110,000 x 20,660,000 2,050,000 x 4,900,000 x 5,100,000 x 8,610,000 $ Current monetary liabilities Bonds payable Common shares Retained earnings Accumulated foreign exchange adjustments 20,660,000 (iii) Calculate the amount of goodwill that would appear on the December 31, Year 2, consolidated balance sheet if there was an impairment loss of LYD50,000 during the year. (Enter answers in whole dollars and not in millions of dollars. Input all other amounts as positive values. Omit currency symbol in your response.) Goodwill - December 31, Year 2 $ (iv) Calculate the amount of the exchange gain or loss that would appear in Kelly's Year 2 consolidated 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) $ (c) Which functional currency would Arkenu prefer to use if it wants to show the following? (i) The strongest solvency position for the company Functional currency is Canadian dollar. O Functional currency is Libyan dinar and accumulated foreign exchange adjustments (AFEA) are included in equity. O Functional currency is Libyan dinar and AFEA are excluded from equity. (ii) The best return on shareholders' equity Functional currency is Canadian dollar. Functional currency is Libyan dinar and other comprehensive income (OCI) is included in income and AFEA included in equity. Functional currency is Libyan dinar and OCI is excluded from income and AFEA are excluded from equity