Question

On December 31, Year 1, Kelly Corporation of Toronto paid 14.90 million Libyan dinars (LYD) for 100% of the outstanding common shares of Arkenu Company of Libya. On this date, the fair values of Arkenu’s identifiable assets and liabilities were equal to their carrying amounts. Arkenu’s compara­tive balance sheets and Year 2 income statement are as follows:

BALANCE SHEET
At December 31
		Year 2			Year 1
Current monetary assets	LYD	12,357,000		LYD	9,790,000
Inventory		2,066,000			2,457,000
Plant and equipment (net)		7,569,000			7,771,000
	LYD	21,992,000		LYD	20,018,000
Current monetary liabilities	LYD	2,185,000		LYD	2,505,000
Bonds payable, due Dec. 31, Year 6		4,990,000			4,990,000
Common shares		5,190,000			5,190,000
Retained earnings		9,627,000			7,333,000
	LYD	21,992,000		LYD	20,018,000

INCOME STATEMENT
For the year ended December 31, Year 2
Sales	LYD	16,572,000
Inventory, Jan. 1		2,457,000
Purchases		11,106,000
Inventory, Dec. 31		(2,066,000	)
Depreciation expense		202,000
Other expenses		796,000
		12,495,000
Net income	LYD	4,077,000

Additional Information

• Exchange rates

Dec. 31, Year 1	LYD1	=	$0.52
Sep. 30, Year 2	LYD1	=	$0.62
Dec. 31, Year 2	LYD1	=	$0.65
Average for Year 2	LYD1	=	$0.58

• Arkenu Company 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 LYD1 = $0.63.

Required:

(a) Assume that Arkenu's functional currency is the Canadian dollar:

(i) Calculate the Year 2 exchange gain or loss that would result from the translation of Arkenu's financial statements. (Enter answers in whole dollars and not in millions of dollars. Input all amounts as positive value. Omit currency symbol in your response.)

(Click to select)  Exchange gain  Exchange loss             $

(ii) Prepare translated financial statements for Year 2.

Income Statement – Year 2
	LYD		Rate	Dollars
Sales	16,572,000	×		$
Cost of goods sold	11,497,000
Depreciation expense	202,000	×
Other expenses	796,000	×
(Click to select)  Exchange gain  Exchange loss
	12,495,000
Net income	4,077,000			$

Retained Earnings Statement – Year 2
	LYD		Rate	Dollars
Bal. Jan. 1	7,333,000	×		$
Net income	4,077,000
	11,410,000
Dividends	1,783,000	×
Bal. Dec. 31	9,627,000			$

Balance Sheet – December 31, Year 2
	LYD		Rate	Dollars
Current monetary assets	12,357,000	×		$
Inventory	2,066,000	×
Plant and equipment (net)	7,569,000	×
	21,992,000			$
Current monetary liabilities	2,185,000	×		$
Bonds payable	4,990,000	×
Common shares	5,190,000	×
Retained earnings	9,627,000
	21,992,000			$

Answer 1