Case Facts: Additional Information:

On the date of acquisition, the fair value of MSC$\text{'}$s assets and liabilities were equal to their

carrying values, except for:

On the date of acquisition, the customer list had a useful life of $13$ years.

Goodwill is tested for impairment at every reporting period. There was no impairment in

In $2025,$ goodwill was determined to be impaired by $$29,500.$ As at December $31,2026,$

goodwill had a recoverable amount of $$19,500.$ Any adjustments for goodwill are included in

"other expense". In $2025,$ Studio purchased inventory from MSC for $$60,000.$ MSC earned a $$20,000$ profit on

the sale. Studio held $20\%$ of the inventory at the end of $2025.$

On January $1,2026,$ Studio sold equipment to MSC for $$300,000.$ The net carrying value of

the equipment was $$265,000$ at the time of the sale. The equipment had a useful life of $4$ years

at the time of the sale.

In $2026,$ MSC paid $$25,000$ in dividends.

On May $1,2026,$ MSC sold $100\%$ of the land that it had on acquisition to a third$-$party for

$$465,000.$

Both companies pay tax at a rate of $40\%.$ Prepare a consolidated statement of income for the year$-$ended December $31,2026.(7\mathrm{.}5$

marks$)$

Prepare a consolidated statement of financial position as at December $31,2026.$ Ensure

you show a detailed calculation of retained earnings. $(12$ marks$)$

On December $31,2023,$ Studio Inc. $($Studio$)$ purchased $100\%$ of the common shares of Movie

Star Corp. $($MSC$)$ for $$2,500,000.$ On the date of acquisition, MSC$\text{'}$s retained earnings was

$$450,000$ and its common shares was $$35,000.$

It is now December $31,2026.$ Below are the financial statements for the two companies, as at

and for the year$-$ended December $31,2026$: