On January 1, Year 4, Cyrus Inc. paid $914,000 in cash to acquire all of the ordinary shares of Fazli Company. On that date, Fazli's retained earnings were $200,000. All of Fazli's assets and liabilities had fair values equal to carrying amounts except for equipment, which was worth $50,000 more than carrying amount and had a remaining useful life of five years.

In Year 4, Cyrus reported net income from its own operations (exclusive of any income from Fazli) of $125,000 and declared no dividends. In Year 4, Fazli reported net income of $90,000 and paid a $40,000 cash dividend. Cyrus uses the cost method to report its investment in Fazli. 

The financial statements for Cyrus and Fazli for the year ended December 31, Year 5, were as follows:

(a) Prepare a schedule to allocate and amortize the acquisition differential for Years 4 and 5.

(b) Calculate equipment and goodwill for the consolidated balance sheet at the end of Year 5.

(c) Calculate investment income from Fazli and investment in Fazli account balances for Cyrus's separate entity financial statements for Year 5, assuming Cyrus uses the

(i) Cost method

(ii) Equity method

(d) How does the parent's method of accounting for its investment affect the amount reported for expenses in its December 31, Year 5, consolidated income statement?

(e) How does the parent's method of accounting for its investment affect the amount reported for equipment in its December 31, Year 5, consolidated balance sheet?

(f) What is Cyrus's January 1, Year 5, retained earnings account balance assuming Cyrus accounts for its investment in Fazli using the

(i) Cost method?

(ii) Equity method?

(g) What is consolidated retained earnings at January 1, Year 5 assuming Cyrus accounts for its investment in Fazli using the
(i) Cost method?

(ii) Equity method?

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Cyrus Fazli $ 928,000 $ 844,000 Revenues and investment income Expenses 674,000 710,000 $ 254,000 $ 814,000 $ 134,000 Profit $ 250,000 Retained earnings, 1/1/Year 5 254,000 Profit 134,000 Dividends paid (104,000) $ 964,000 $ 714,000 (42,000) $ 342,000 $ 614,000 Retained earnings, 12/31/Year 5 Equipment (net) 914,000 Investment in Fazli Receivables and inventory 414,000 484,000 94,000 Cash 152,000 $2,136,000 $ 558,000 $1,250,000 $ 484,000 Total assets Ordinary shares Retained earnings 342,000 964,000 424,000 $1,250,000 Liabilities 614,000 $2,136,000 Total equities and liabilities