In January 1, 2017, Palm Limited (Palm) acquired a 90% interest in Springs Company (Springs) for $180,000. The ordinary shares and retained earnings of Springs on the date were $100,000 and $40,000, respectively. In negotiating the purchase price, it was agreed that the assets on Springs’ balance sheet were fairly valued except for the plant assets, which had a $44,000 excess of fair value over carrying value. It was also agreed that Springs had unrecognized intangible assets consisting of trademarks that had an estimated value of $36,000. The plant assets had a remaining useful life of 8 years at the acquisition date and the trademarks would be amortized over a 12-year period.

The following financial statements are available for Palm and Springs as at December 31, 2021.

Balance Sheet

At December 31, 2021

	Palm	Springs
Cash	$   18,100	$    20,600
Accounts receivable	60,000	55,000
Inventory	35,000	46,000
Investment in Springs – at cost	180,000	---------
Plant and equipment	112,000	74,000
Land	90,000	80,000
	$ 495,100	$ 275,600
Accounts payable	$   56,000	$   70,100
Bonds payable	85,000	-----
Ordinary shares	225,000	100,000
Retained earnings	129,100	105,500
	$ 495,100	$ 275,600

Statements of Retained Earnings

For the year ended December 31, 2021

	Palm	Springs
Retained earnings, January 1, 2021	$   21,200	$   172,500
Net income	197,900	13,000
Dividends	(90,000)	(80,000)
Retained earnings, December 31, 2021	$ 129,100	$   105,500

Income Statements

For the year ended December 31, 2021

	Palm	Springs
Sales	$ 535,400	$270,000
Dividend revenue & other income or gains	165,000	--------
	$ 700,400	$270,000
Cost of goods sold	$    64,000	$206,000
Selling expense	78,400	24,100
Administration expense	20,000	10,000
Depreciation expense	26,300	10,700
Income taxes	13,800	6,200
	$ 502,500	$257,000
Net income	$ 197,900	$ 13,000

Other information:

• Palm uses the fair value enterprise (FVE) method to value the NCI.

• On January 2, 2020, Springs sold merchandise to Palm for $50,000; this inventory originally cost $35,000. By the end of 2020, Palm sold 80% of this inventory to unrelated third parties.
• During 2021, Springs sold merchandise to Palm for $40,000, 75% of which remains in Palm’s inventory on December 31, 2021. Springs earns a gross margin of 30% on intercompany sales.  
• In 2020, Palm sold merchandise to Springs for $60,000; the mark-up on cost for intercompany sales is 20%. Springs’ 2020 ending inventory contains 40% of this inventory.
• During 2021, Palm sold merchandise to Springs for $75,000; the mark-up on cost for intercompany sales is 20%. Springs’ 2021 ending inventory contains 70% of this inventory. Springs still owes $50,000 for this inventory as of December 31, 2021.

• On January 1, 2021, Springs sold equipment to Palm for $180,000. Spring acquired the equipment on January 1, 2018 for $240,000 and had estimated a useful life of 8 years. There were no changes made to the remaining useful life when Palm acquired the equipment.
• In 2018, Palm sold a piece of land to Springs for $80,000. Palms acquired this land many years ago for $28,000. Springs sold one-half of the land in 2021 to an unrelated third party.
• In addition to its merchandising activities, Palm is in the office equipment rental business. Springs paid Palms $25,000 for the rental of office equipment in 2021.
• During 2021, Springs paid Palm $10,000 interest for intercompany advances.

• During 2021, Palms declared and paid dividends of $90,000 while Springs declared and paid dividends of $80,000.

• Assume a corporate rate of 30% for both companies.

REQUIRED:

1. Prepare a consolidated income statement for the period ended December 31, 2021.
   
2. Prepare a consolidated balance sheet for the period ended December 31, 2021.