2 (40 marks) Canadian Co (whose reporting currency is C$) acquired a 90% interest in a U.S. Co (whose reporting currency is U$) in the beginning of the year for C$400,000 when the exchange rate was U$1 = C$1.18. At that date, all the identifiable assets and liabilities of U.S. Co reflected their fair values and its stockholders' equity consisted of U$500,000 capital stock and U$300,000 retained earnings. The trial balance of U.S. Co for the year shows the following information: Sales Opening inventories Purchases Closing inventories Cost of sales Gross profit Depreciation expense Other operating expenses Net income Retained earnings, opening balance Dividend Retained earnings, ending balance Capital stock Accounts payable Loan from Canadian Co Total equity and liabilities Cash Accounts receivable Inventories Equipment Accumulated depreciation- Equipment Total assets U$1,400,000 120,000 1,000,000 1,120,000 250,000 (870,000) 530,000 (120,000) (230,000) 180,000 300,000 (60,000) 420,000 500,000 250,000 50,000 1,220,000 260,000 240,000 250,000 1,000,000 (530,000) 1,220,000 Sales, expenses, and purchases of inventory occurred evenly throughout the year. The average rates (U$1=C$) were C$1.16 for the year and C$1.13 for closing inventories. Rates were C$1.15 at year end and C$1.14 for dividend. The functional currency of U.S. Co is its local currency. Required: 1) Calculate the translation or remeasurement gain/loss, assuming net monetary assets were U$90,000 in the beginning of the year. (7 marks) 2) Prepare a translation worksheet to convert U.S. Co's trial balance into C$. (25 marks) 3) Canadian Co made a C$55,000 long-term non-interest-bearing loan to U.S. Co (denominated as U$50,000) in the beginning of the year when the exchange rate was U$1=C$1.10. Explain whether this loan is a foreign currency transaction for Canadian Co. If yes, calculate the exchange gain/loss on this loan for Canadian Co. (8 marks)