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On December 31 Year 1, Dana's warehouses (DW) purchased 100% of the shares of Jodi's tools (JT). Dana's Warehouse operates in Toronto, Ontario and manufactures electronics. Jodi's tools is based out of Los Angeles and manufactures tools. JT sales are approximately half in Canadian dollars and half in United States dollars. Approximately 70% of JT expenses are from a raw material provider in Ontario. JT has two major competitors in Los Angeles. JT obtained a loan from Ontario to finance their purchases of raw materials. Since both sales and expenses are incurred in both CAD and USD, JT usually has more than one currency left over at the end of every month. If there is a large CAD balance remaining. JT often transfers the CAD to their USD bank account. Exchange rates were as follows: Dec 31, Year 1: US\$1 = C\$1.12 Dec 31, Year 2: US\$1 = C \$1.07 Average Year 1: US $1=C$1.03 Average Year 2: US\$1 = C $1.10 JT declared and paid dividends on December 31, Year 2. The financial statements for Jodi's Tools: Required: A) Discuss what functional currency JT should be using for their financial records. B) Assuming the functional currency was determined to be United States Dollars, using the financial statements. (I) calculate the Year 2 CAD exchange gain (loss) that would result from the translation of JT financial statements and would be reported in other comprehensive income (ii) calculate the retained earnings in CAD as at December 31, Year 2

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