Financial statements of Par Corp. and its subsidiary Star Inc. on December 31,
Year 12, are shown below:

Other Information
€¢ On January 1, Year 5, the balance sheet of Star showed the following share-holders€™ equity:
$8 cumulative preferred shares, 500 shares issued...$ 50,000
Common shares, 2,000 shares issued....... 200,000
Deficit (Note 1).............. (80,000)
...................... $170,000
On this date, Par acquired 1,400 common shares of Star for a cash payment of $280,000.
The fair values of Star€™s identifiable net assets differed from carrying amounts only with respect to the following:

The plant had an estimated remaining useful life of five years on this date, and the long-term liabilities had a maturity date of December 30, Year 12. Any goodwill is to be tested annually for impairment.
€¢ Both Par and Star make substantial sales to each other at an intercompany selling price that yields the same gross profit as the sales they make to unrelated customers. Intercompany sales in Year 12 were as follows:
Par to Star......... $400,000
Star to Par......... 330,000
€¢ During Year 12, Par billed Star $2,000 per month in management fees. At year-end, Star had paid for all months except for December.
€¢ The January 1, Year 12, inventories of the two companies contained unrealized intercompany profits as follows:
Inventory of Par......... $30,000
Inventory of Star......... 21,000
€¢ The December 31, Year 12, inventories of the two companies contained unrealized intercompany profits as follows:
Inventory of Par......... $35,000
Inventory of Star......... 37,000
€¢ On July 1, Year 7, Star sold equipment to Par for $82,000. The equipment had a carrying amount in the records of Star of $60,000 on this date and an estimated remaining useful life of five years.
€¢ Goodwill impairment losses were recorded as follows: Year 7, $92,500; Year 9, $46,470; and Year 12, $19,710.
€¢ Assume a 40% corporate tax rate.
€¢ Par has accounted for its investment in Star by the cost method.
€¢ All dividends in arrears were paid by December 31, Year 11.
Required:
(a) Prepare, with all necessary calculations, the following:
(i) Year 12 consolidated retained earnings statement
(ii) Consolidated balance sheet as at December 31, Year 12
(b) How would the return on equity attributable to Par€™s shareholders for Year 12 change if Star€™s preferred shares were non-cumulative instead of cumulative?
(c) On January 1, Year 13, Star issued common shares for $100,000 in cash.
Because Par did not purchase any of these shares, Par€™s ownership percentage declined from 70 to 56%. Calculate the gain or loss that would be charged or credited to consolidated shareholders€™ equity as a result of this transaction.

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BALANCE SHEETS at December 31, Year 12 Par Star Cash Accounts receivable Inventories Land Plant and equipment Accumulated depreciation Investment in Star common shares $ 40,000 $1,000 85,000 48,000 70,000 700,000 (180,000) (300,000) 100,000 55,000 30,000 400,000 280,000 $725,000 $604,000 $ 92,000 $180,000 10,000 50,000 200,000 164,000 $725,000 S604,000 Ac counts payable Accrued liabilities Preferred shares Common shares Retained earnings 8,000 450,000 175,000 RETAINED EARNINGS STATEMENTS for the Year Ended December 31, Year 12 Par Star $180,000 $208,000 30,000 (24,000) 210,000 184,000 20,000 $175,000 $164,000 Balance, January 1 Net income (loss) 35,000 Dividends Balance, December 31 Accounts receivable Inventory Plant Long-term liabilities Carrying t Fair value $40,000 72,000 650,000 420,000 $42,000 65,000 600,000 400,000