The financial statements of Pa and Son as at December 3 1 , Year 6 are shown below: Balance Sheets At December 3 1 , Year 6 Additional information: Pa acquired 80% of Son's common shares on January 1, Year 1 for $170,000. At that date, reported a retained earnings balance of $20,000 and common shares 3125,000_ On that dated, Son' s net assets were equal to fair market value Qf the following: Carrying Value_Eair Value Cash Receivables Inventory Land Property, plant and equipment Accumulated depreciation Other assets Investment in Son Liabilities and Shareholders' equity Current liabilities Long-term liabilities Common shares Retained earnings s s 14,000 25,000 45,000 20,000 175,000 35,000 59,600 170 ooo 473.600 36,400 350,000 87 200 473.600 s s Son 16,800 21,000 50,000 10,000 250,000 40,000 307.800 37,800 102,500 125,000 307.800 Son 29,500 12 ooo Son 270,000 28,000 19,000 9,500 11 ooo 29.500 Inventory Equipment (10 years useful life remaining) Land $260,000 s 60,000 $240,000 s 12,000 Retained earnings, Jan 1 N et income Dividends Retained earnings Statements of Retained Earnings For the year ended December 31, Year 6 77,600 34,600 25 ooo 87.200 Income Statements For the year ended December 3 1: Year 6 Sales revenue Other income Cost of goods sold Depreciation & amortization expense General and admmistration expenses Interest expense Income taxes expense N et income 430,200 42,400 350,000 18,000 57,000 13 ooo 34.600 Annual impairment tests of goodwill resulting in losses of $8,000 in Year 3 _ December 31, 2. Year 6, the recoverable value of goodwill was $65,000. Pa uses the cost method. Assume a 40% corporate tax rate. _ Son's sales during Year 6 include $70,000 of sales to Pa. Goods purchased from Son and included in Pa's inventories were $50,000 at the end of Year S and $30,000 at the end of Year 6_ Son's gross profit margin to Pa is 30% During Year 6, Pa sold inventory that it had purchased for $80,000 to Son for SIOO,OOO_ 35% of this inventory was resold by Son by December 31, Year 6. On April 1, Year 6, Pa sold machinery to Son for $40,000. The carrying value of the machinery at the date of sale was $48,000_ The remaining useful life of the machinery on that date was 4 years. On Januao 1, Year 4, Son sold a building to for $60,000. Son had purchased the building 8. on January 1, Year 1 for $80,000 and it had an estimated life on that date with no salvage value. On March 1 Year 6, Son borrowed Sl 0.000 from Pa. The one-year note had interest rate of 6%. Both the principal and Interest were payable at maturity Required: (a) Prepare the calculation and allocation of acquisition differential schedule and the acquisition differential amortization and goodwill impairment schedule (4 marks) (b) Prepare the intercompany profits, gams and losses schedule (4 marks) (c) Prepare the calculation of consolidated net income for Year 6 (11.5 marks) (d) Prepare the calculation of consolidated retained earnings at Jan. 1, Year 6 (5 marks) (e) Prepare in good form the following for Year 6: a. Consolidated income statement (24 marks) b. Consolidated retained earnings statement (2 marks) c. Consolidated balance sheet (28.5 marks) 2. Prepare the working paper eliminating _loumal entries for the inter-company sale of the machinery in Year 6 (3 marks)