The Y Company is a foreign subsidiary of the X Company. It was acquired on December 31st. 2020. Y has been manufacturing computer parts and other retail items for over 100 years. Its sales prices are determined by the tough competitive market in Switzerland. The Chief Financial Officer of Y has just faxed you the December 31st.2021 financial statements of Y, which are in Swiss Francs(SF).

Y COMPANY

Balance Sheets

December 31,2021..December 31,2022 Cash..SF 200,000..SF 150,000

Accounts receivable.. 250,000. 225,000

Inventory.. 400,000. 430,000

Equipment, net..1,350,000.. 900,000

TOTAL ASSETSSF2,200,000...............SF1,705,000

Accounts PayableSF 310,000.SF 355,000

Bonds Payable.. 500,000... 500,000

Common Shares. .1,100,000. 600,000

Retained Earnings. 290,000. 250,000

TOTAL LIABILITIES&OWNERS EQUIT... SF 2,200,000.SF1,705,000

Y COMPANY

Statement of Income For Year ended December 31,2021

Sales.$2,800,000

Cost of Goods Sold2,300,000

Gross Profit 500,000

Selling and administrative expenses 160,000

Bond interest expense.. 40,000 Amortization. 150,000

Income before income tax expense 150,000

Income taxes.. 50,000

NET INCOME.SF 100,000

Additional Information:- Exchange rates were as follows:-

January 1st,2016...SF1.00 = C$0.60

Average for October 1 to December 31,2020..SF1.00=CS0.65

December 31,2020..SF1.00=CS0.70

Average for 2021..SF1.00=CS0.74

July 1, 2021...SF1.00=CS0.75

Average for October 1 to December 31,2021..SF1.00=CS0.76

December 31,2021..SF1.00=CS0.80

ii. Y has been upgrading its equipment in recent years. On January 1st. 2021, it disposed of all its old equipment and acquired SG 1,200,000 of new equipment with an expected useful life of 12 years. On July 1,2021, it acquired another SF 600,000 of new equipment with an expected useful life of 6 years. Y amortizes all of its equipment on a straight-line basis, calculated monthly. iii. Y partially financed its acquisition of equipment I 2016 by issuing SF500,000 of 10-year, 8% bonds payable in Switzerland on January 1,2016. Similarly, Y partially financed its acquisition of equipment in 2021 by issuing SF 500,000 of common shares in Switzerland on July 1,2021.

iv. Inventory on hand on December 31st.2020 and December 31st.2021 were purchased from respected Swiss suppliers evenly over the last 3 months of 2020 and 2021.

v. Dividends of SF60,000 were declared and paid on December 15th.2021. vi. All sales, purchases, and other expenses were incurred evenly during the year

. Required:- a. Should Y Companys financial statements be translated into Canadian dollars using the Functional Currency Method or the Presentation Currency Method? State three facts from the question to support your answer(4 marks)

b. Disregard your response to part(a) above and, using the Functional Currency method, provide a detailed calculation of the foreign exchange gain or loss(10 marks)

c. Disregard your responses to (a) and (b) above and translate the following accounts into Canadian dollars as at December 31st. 2021, using the Currency Presentation Method. i. Equipment (1 mark) ii. Bonds Payable (1 mark) iii. Cumulative Translation adjustment(4 marks)