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

BALANCE SHEETS
At December 31, Year 12
		Par			Star
Cash	$	54,000		$	2,400
Accounts receivable		114,000			99,000
Inventories		84,720			62,000
Land		44,000			84,000
Plant and equipment		490,000			840,000
Accumulated depreciation		(194,000	)		(314,000	)
Investment in Star common shares		228,200			—
	$	820,920		$	773,400
Accounts payable	$	97,600		$	194,000
Accrued liabilities		9,400			12,800
Preferred shares		—			64,000
Common shares		450,000			170,000
Retained earnings		263,920			332,600
	$	820,920		$	773,400

RETAINED EARNINGS STATEMENTS
For the Year Ended December 31, Year 12
		Par			Star
Balance, January 1	$	273,920		$	391,600
Net income (loss)		28,000			(25,000	)
		301,920			366,600
Dividends		(38,000	)		(34,000	)
Balance, December 31	$	263,920		$	332,600

Other Information

• On January 1, Year 5, the balance sheet of Star showed the following shareholders’ equity:

$8 cumulative preferred shares, 500 shares issued	$ 64,000
Common shares, 2,000 shares issued	170,000
Deficit (Note 1)	(94,000)
	$140,000

Note 1: Dividends on preferred shares are two years in arrears.

On this date, Par acquired 1,400 common shares of Star for a cash payment of $228,200.

The fair values of Star’s identifiable net assets differed from carrying amounts only with respect to the following:

	Carrying amount			Fair value
Accounts receivable	$	48,000		$	46,000
Inventory		58,000			65,000
Plant		565,000			615,000
Long-term liabilities		326,000			346,000

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	$ 330,000
Star to Par	372,000

• 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	$ 28,000
Inventory of Star	27,000

• The December 31, Year 12, inventories of the two companies contained unrealized intercompany profits as follows:

Inventory of Par	$ 49,000
Inventory of Star	51,000

• On July 1, Year 7, Star sold equipment to Par for $73,000. The equipment had a carrying amount in the records of Star of $53,000 on this date and an estimated remaining useful life of five years.
• Goodwill impairment losses were recorded as follows: Year 7, $81,500; Year 9, $50,670; and Year 12, $20,410.
• 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. (Input all amounts as positive values. Omit $ sign in your response.)

Par Corp.
Consolidated Retained Earnings Statement
Year Ended December 31, Year 12
Balance January 1	$
Net loss
Dividends
Balance December 31	$

(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?

multiple choice 1

• No Change

• Change

(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. (Input all amounts as positive values. Round intermediate calculations and final answer to nearest dollar amount. Omit $ sign in your response.)

Assets Par Corp. Consolidated Balance Sheet as at December 31, Year 12 Liabilities and Equity $ CA $ 0 0