On December 31, Year 1, Precision Manufacturing Inc. (PMI) of Edmonton purchased 100% of the outstanding ordinary shares of Sandora Corp. of Flint, Michigan.

Sandoras comparative statement of financial position and Year 2 income statement are as follows:

STATEMENT OF FINANCIAL POSITION
At December 31
	Year 2			Year 1
Plant and equipment (net)	US$	6,780,000		US$	7,480,000
Inventory		5,880,000			6,480,000
Accounts receivable		6,280,000			4,880,000
Cash		960,000			1,080,000
	US$	19,900,000		US$	19,920,000
Ordinary shares	US$	5,180,000		US$	5,180,000
Retained earnings		7,660,000			7,180,000
Bonds payabledue Dec. 31, Year 6		4,980,000			4,980,000
Current liabilities		2,080,000			2,580,000
	US$	19,900,000		US$	19,920,000

INCOME STATEMENT
For the year ended December 31, Year 2
Sales	US$	48,000,000
Cost of purchases		37,440,000
Change in inventory		600,000
Depreciation expense		700,000
Other expenses		6,140,000
		44,880,000
Profit	US$	3,120,000

Additional Information

• Exchange rates

Dec. 31, Year 1	US$1	=	C$1.10
Sep. 30, Year 2	US$1	=	C$1.07
Dec. 31, Year 2	US$1	=	C$1.05
Average for Year 2	US$1	=	C$1.08

• Sandora 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 US$1 = C$1.06.

Required:

(a) Assume that Sandora's functional currency is the Canadian dollar:

(i) Calculate the Year 2 exchange gain (loss) that would result from the translation of Sandora's financial statements. (Input all amounts as positive value. Omit currency symbol in your response.)

(Click to select) Exchange gain Exchange loss C$

(ii) Translate the Year 2 financial statements into Canadian dollars. (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. Input all other amounts as positive values. Omit currency symbol in your response.)

Income Statement-Year 2
	US$		Rate	C$
Sales	48,000,000
Cost of purchases	37,440,000
Change in inventory	600,000
Depreciation expense	700,000
Other expenses	6,140,000
(Click to select) Exchange gain Exchange loss
	44,880,000
(Click to select) Profit Loss	3,120,000

Retained Earnings Statement-Year 2
	US$		Rate	C$
Bal. Jan 1	7,180,000
Profit	3,120,000
	10,300,000
Dividends	2,640,000
Bal. Dec 31	7,660,000

Statement of Financial Position - December 31, Year 2
	US$		Rate	C$
Plant and equipment (net)	6,780,000
Inventory	5,880,000
Accounts receivable	6,280,000
Cash	960,000
	19,900,000
Ordinary shares	5,180,000
Retained earnings	7,660,000
Bonds payable	4,980,000
Current liabilities	2,080,000
	19,900,000

(b) Assume that Sandora's functional currency is the U.S. dollar:

(i) Calculate the Year 2 exchange gain (loss) that would result from the translation of Sandora's financial statements and would be reported in other comprehensive income. (Input all amounts as positive value. Omit currency symbol in your response.)

(Click to select) Exchange gain Exchange loss C$

(ii) Translate the Year 2 financial statements into Canadian dollars. (Round the values in the "Rate" column to 2 decimal places. Loss amounts should be indicated with a minus sign. Input all other amounts as positive values. Omit currency symbol in your response.)

Income Statement - Year 2
	US$		Rate	C$
Sales	48,000,000
Cost of purchases	37,440,000
Change in inventory	600,000
Depreciation expense	700,000
Other expenses	6,140,000
Total	44,880,000
Profit	3,120,000
Other comprehensive (Click to select) income loss unrealized exchange (Click to select) gain loss
(Click to select) Comprehensive income Comprehensive loss

Retained Earnings Statement - Year 2
	US$		Rate	C$
Bal. Jan 1	7,180,000
Profit	3,120,000
	10,300,000
Dividends	2,640,000
Bal. Dec 31	7,660,000

Statement of Financial Position - December 31, Year 2
	US$		Rate	C$
Plant and equipment (net)	6,780,000
Inventory	5,880,000
Accounts receivable	6,280,000
Cash	960,000
	19,900,000
Ordinary shares	5,180,000
Retained earnings	7,660,000
Accumulated foreign exchange adjustments
Bonds payable	4,980,000
Current liabilities	2,080,000
	19,900,000

(c) Which functional currency would Sandora prefer to use if it wants to show the following?

(i) The strongest solvency position for the company.

multiple choice 8

• Functional currency is Canadian dollar.

• Functional currency is U.S. dollar and accumulated foreign exchange adjustments (AFEA) are included in equity.

• Functional currency is U.S. dollar and accumulated foreign exchange adjustments (AFEA) are excluded from equity.

(ii) The best return on shareholders' equity.

multiple choice 9

• Functional currency is Canadian dollar.

• Functional currency is U.S. dollar and other comprehensive income (OCI) is included in income.

• Functional currency is U.S. dollar and other comprehensive income (OCI) is excluded income.