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	$	40,000		$	1,000
Accounts receivable		100,000			85,000
Inventories		55,000			48,000
Land		30,000			70,000
Plant and equipment		400,000			700,000
Accumulated depreciation		(180,000	)		(300,000	)
Investment in Star common shares		280,000
	$	725,000		$	604,000
Accounts payable	$	92,000		$	180,000
Accrued liabilities		8,000			10,000
Preferred shares					50,000
Common shares		450,000			200,000
Retained earnings		175,000			164,000
	$	725,000		$	604,000

RETAINED EARNINGS STATEMENTS
For the Year Ended December 31, Year 12
		Par			Star
Balance, January 1	$	195,000		$	208,000
Net income (loss)		15,000			(24,000	)
		210,000			184,000
Dividends		(35,000	)		(20,000	)
Balance, December 31	$	175,000		$	164,000

Other Information

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

$8 cumulative preferred shares, 500 shares issued	$ 50,000
Common shares, 2,000 shares issued	200,000
Deficit (Note 1)	(80,000)
	$170,000

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 $280,000.

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

	Carrying amount			Fair value
Accounts receivable	$	42,000		$	40,000
Inventory		65,000			72,000
Plant		600,000			650,000
Long-term liabilities		400,000			420,000

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	$ 400,000
Star to Par	330,000

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	$ 30,000
Inventory of Star	21,000

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

Inventory of Par	$ 35,000
Inventory of Star	37,000

On July 1, Year 7, Star sold equipment to Par for $82,000. The equipment had a carrying amount in the records of Star of $60,000 on this date and an estimated remaining useful life of five years.

Goodwill impairment losses were recorded as follows: Year 7, $92,500; Year 9, $46,470; and Year 12, $19,710.

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 Pars shareholders for Year 12 change if Stars 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, Pars 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.)

(Click to select) Gain Loss $