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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: STATEMENT OF FINANCIAL POSITION At December 31 Year 2 Plant and equipment (net) US$ 6,610,000 Inventory 5,710,000 Accounts receivable 6,110,000 Cash 790,000 US$19, 220,000 Ordinary shares US$ 5,010,000 Retained earnings 7.490,00 Bonds payable-due Dec. 31, Year 6 4,810,000 Current liabilities 1,910,000 US$19, 220,000 Year 1 US$ 7,310, eee 6,310,000 4,710,eee 910,000 US$19, 240,000 US$ 5,018,888 7,010, eee 4,810,000 2,410.eee US$19, 240,000 INCOME STATEMENT For the year ended December 31, Year 2 Sales US$31,000,000 Cost of purchases 24,180,000 Change in inventory 600,000 Depreciation expense 700,000 Other expenses 3,930,000 29,410,000 Profit US$ 1,590,000 Additional Information . Exchange rates Dec. 31, Year 1 Sep. 30, Year 2 Dec. 31, Year 2 Average for Year 2 US$1 - C$1.10 US$1 C$1.07 US$1 C$1.05 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$106. Required: (a) Assume that Sandora's functional currency is the Canadian dollar (1) Calculate the Year 2 exchange gain (loss) that would result from the translation of Sandora's financial statements. (Input all amounts as positive value. Omit currency symbol in your response.) (Click to select) C$ (11) 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 Rate Sales Cost of purchases Change in inventory Depreciation expense Other expenses (Click to select) USS 31,000,000 24,180,000 600,000 700,000 3,930,000 29, 410, eee 1,590,000 (Click to select) CS Retained Earnings Statement-Year 2 USS Rate Bal. Dan 1 7,010,000 Profit 1,590,000 8,600,000 Dividends 1,110,000 Bal. Dec 31 7,490,000 . C$ Statement of Financial Position - December 31, Year 2 USS Rate Plant and equipment (net) 6,610,000 Inventory 5,719,00 Accounts receivable 6,110,000 Cash 790,000 19, 220,000 Ordinary shares 5,810,000 Retained earnings 7,490,000 Bonds payable 4,810,000 Current liabilities 1,910,000 19,220,000 IN (b) Assume that Sandora's functional currency is the U.S. dollar (1) 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$ (11) 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 31,000,000 Cost of purchases 24,180,eee Change in inventory 600,000 Depreciation expense 700,000 Other expenses 3,930,000 Total 29.410,000 Profit 1,590,000 Other comprehensive [Click to select- unrealized exchange (Click to select (Click to select) II Rate C$ Bal. Jan 1 Profit US$ 7,810,000 1,590,000 8,600,000 1,110,000 7,490, eee Dividends Bal. Dec 31 Rate Statement of Financial Position - December 31, Year 2 US$ Plant and equipment (net) 6,610,000 Inventory 5,710,000 Accounts receivable 6, 110,000 Cash 790,000 19,220,000 Ordinary shares 5,010,000 Retained earnings 7,490,000 Accumulated foreign exchange adjustments Bonds payable 4,810,000 Current liabilities 1.910.000 19, 220,000 I IM (c) Which functional currency would Sandora prefer to use if it wants to show the following? (1) The strongest solvency position for the company O Functional currency is Canadian dollar Functional currency is US dollar and accumulated foreign exchange adjustments (AFEA) are included in equity O Functional currency is U.S. dollar and accumulated foreign exchange adjustments (AFEA) are excluded from equity. (11) The best return on shareholders' equity O Functional currency is Canadian dollar O Functional currency is US dollar and other comprehensive income (OC) is included in income, O Functional currency is US dollar and other comprehensive income (OC) is excluded income