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 $45,000 $1,500

Accounts receivable105,00090,000

Inventories 85,80053,000

Land 35,00075,000

Plant and equipment400,000750,000

Accumulated depreciation(185,000)(305,000)

Investment in Star common shares215,600 0

Totl assets $701,400$664,500

Accounts payable $94,000 $185,000

Accrued liabilities 8,500 11,000

Preferred shares 0 55,000

Common shares 450,000150,000

Retained earnings 148,900263,500

$701,400$664,500

RETAINED EARNINGS STATEMENTSFor the Year Ended December 31, Year 12

Par Star

Balance, January 1$158,900$304,500

Net income (loss)19,000(16,000)

total 177,900288,500

Dividends (29,000)(25,000)

Balance, December 31$148,900$263,500

Other Information

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

$8 cumulative preferred shares, 500 shares issued $ 55,000

Common shares, 2,000 shares issued1 50,000

Deficit (Note 1) (85,000)

$120,000

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 $215,600.

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

Carrying amountFair valueAccounts receivable$39,000$37,000Inventory49,00056,000Plant520,000570,000Long-term liabilities308,000328,000

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$ 240,000

Star to Par345,000

• 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$ 19,000Inventory of Star18,000

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

Inventory of Par$ 40,000Inventory of Star42,000

• On July 1, Year 7, Star sold equipment to Par for $64,000. The equipment had a carrying amount in the records of Star of $44,000 on this date and an estimated remaining useful life of five years.
• Goodwill impairment losses were recorded as follows: Year 7, $77,000; Year 9, $47,970; and Year 12, $19,960.
• 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 StatementYear Ended December 31, Year 12Balance January 1$Net lossDividendsBalance December 31$

(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.