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. Problem 11-2 LO3, 4 Refer to Problem 11-1. All of the facts and data given in the problem are the same except that PMI only purchased 40% of the outstanding ordinary shares of Sandora for US$ 6,400,000. Additional Information PMI's 40% in Sandora gave it significant influence over Sandora's key operating and financial policies. PMI uses the equity method to account for its investment in Sandora. Page 741 The carrying amounts of Sandora's net assets were equal to fair values on December 31, Year 1, except for the manufacturing plant which had a fair value in excess of carrying amount of US$ 600,000 and a remaining useful life of 15 years. A goodwill impairment loss of US$ 500,000 on PMI's 40% share of Sandora's goodwill occurred evenly throughout Year 12. Required (a) Assume that Sandora's functional currency is the Canadian dollar. Using the translated financial statements prepared in Problem 11-1 part (a), prepare PMI's journal entries pertaining to its investment in Sandora account