on december 31 year 1 precision manufacturing inc pmi of edmonton purchased 100 of t 3387284

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: Additional Information • Exchange rates Dec. 31, Year 1 …… US$1 = CDN$1.10 Sep. 30, Year 2 …… US$1 = CDN$1.07 Dec. 31, Year 2 …… US$1 = CDN$1.05 Average for Year 2 … US$1 = CDN$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 = CDN$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. (ii) Translate the Year 2 financial statements into Canadian dollars. (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. (ii) Translate the Year 2 financial statements into Canadian dollars. (c) Which functional currency would Sandora prefer to use if it wants to show the following: (i) The strongest solvency position for the company (ii) The best return on shareholders’ equity Briefly explain your answers.

 

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