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$ 6,790,000 US$ 7,490,000 Inventory 5,890,000 6,490,000 Accounts receivable 6,290,000 4,890,000 Cash 970,000 1,090,000 US$ 19,940,000 US$ 19,960,000 Ordinary shares US$ 5,190,000 US$ 5,190,000 Retained earnings 7,670,000 7,190,000 Bonds payabledue Dec. 31, Year 6 4,990,000 4,990,000 Current liabilities 2,090,000 2,590,000 US$ 19,940,000 US$ 19,960,000 INCOME STATEMENT For the year ended December 31, Year 2 Sales US$ 49,000,000 Cost of purchases 38,220,000 Change in inventory 600,000 Depreciation expense 700,000 Other expenses 6,270,000 45,790,000 Profit US$ 3,210,000 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$1.06. Required: (a) Assume that Sandora's functional currency is the Canadian dollar: (i) Calculate the Year 2 exchange gain (loss) that would result from the translation of Sandora's financial statements. (Input all amounts as positive value. Omit currency symbol in your response.) (Click to select) C$ (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 49,000,000 Cost of purchases 38,220,000 Change in inventory 600,000 Depreciation expense 700,000 Other expenses 6,270,000 (Click to select) 45,790,000 (Click to select) 3,210,000 Retained Earnings Statement-Year 2 US$ Rate C$ Bal. Jan 1 7,190,000 Profit 3,210,000 10,400,000 Dividends 2,730,000 Bal. Dec 31 7,670,000 Statement of Financial Position - December 31, Year 2 US$ Rate C$ Plant and equipment (net) 6,790,000 Inventory 5,890,000 Accounts receivable 6,290,000 Cash 970,000 19,940,000 Ordinary shares 5,190,000 Retained earnings 7,670,000 Bonds payable 4,990,000 Current liabilities 2,090,000 19,940,000 (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) 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 49,000,000 Cost of purchases 38,220,000 Change in inventory 600,000 Depreciation expense 700,000 Other expenses 6,270,000 Total 45,790,000 Profit 3,210,000 Other comprehensive (Click to select) unrealized exchange (Click to select) (Click to select) Retained Earnings Statement - Year 2 US$ Rate C$ Bal. January 1 7,190,000 Profit 3,210,000 10,400,000 Dividends 2,730,000 Bal. December 31 7,670,000 Statement of Financial Position - December 31, Year 2 US$ Rate C$ Plant and equipment (net) 6,790,000 Inventory 5,890,000 Accounts receivable 6,290,000 Cash 970,000 19,940,000 Ordinary shares 5,190,000 Retained earnings 7,670,000 Accumulated foreign exchange adjustments Bonds payable 4,990,000 Current liabilities 2,090,000 19,940,000 (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