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On December 3 1 , Year 2 , Palm Inc. purchased 8 0 % of the outstanding ordinary shares of Storm Com pany for $

On December 31, Year 2, Palm Inc. purchased 80% of the outstanding ordinary shares of Storm Company for $460,000. At that date, Storm had ordinary shares of $350,000 and retained earnings of $75,000. In negotiating the purchase price, it was agreed that the assets on Storms statement of financial position were fairly valued except for plant assets, which had a $55,000 excess of fair value over carrying amount. It was also agreed that Storm had unrecognized intangible assets consisting of trademarks that had an estimated value of $30,000. The plant assets had a remaining useful life of eight years at the acquisition date and the trademarks would be amortized over a 12-year period. Any goodwill arising from this business combination would be tested periodically for impairment. Palm accounts for its investment using the cost method.
Financial statements for Palm and Storm for the year ended December 31, Year 6, were as follows:
STATEMENTS OF FINANCIAL POSITION
December 31, Year 6
Palm Storm
Assets
Plant assets (net) $ 380,000 $ 310,000
Investment in Storm 460,000
Other investments 97,00037,000
Notes receivable 25,000
Inventory 250,000330,000
Accounts receivable 103,000235,000
Cash 35,00045,000
$ 1,325,000 $ 982,000
Shareholders' Equity and Liabilities
Ordinary shares $ 650,000 $ 350,000
Retained earnings 260,000300,000
Notes payable 205,000175,000
Other current liabilities 25,00065,000
Accounts payable 185,00092,000
$ 1,325,000 $ 982,000
________________________________________
INCOME STATEMENTS
For the year ended December 31, Year 6
Palm Storm
Sales $ 1,020,000 $ 665,000
Cost of goods sold (713,000)(435,000)
Gross profit $ 307,000 $ 230,000
Selling expenses (37,000)(50,000)
Other expenses (178,000)(102,000)
Interest and dividend income 49,00017,000
Profit $ 141,000 $ 95,000
________________________________________
Additional Information
At December 31, Year 6, an impairment test of Storms goodwill revealed the following:
Fair value less disposal costs based on recent offer from prospective purchaser $ 61,000
Value in use based on undiscounted future net cash flows 80,000
Value in use based on discounted future net cash flows using a discount rate of:
7%, which is Storm's incremental borrowing rate 52,000
4%, which is the risk-free rate on government bonds 57,000
________________________________________
An impairment test indicated that the trademarks had a recoverable amount of $11,050. The impairment loss on these assets occurred entirely in Year 6.
On December 26, Year 6, Palm declared dividends of $51,000, while Storm declared dividends of $35,000.
Amortization expense is reported in selling expenses, while impairment losses are reported in other expenses.
Required:
(a) Prepare consolidated financial statements. (Input all values as positive numbers.)
(b) Assuming that none of the acquisition differential had been allocated to trademarks at the date of acquisition complete the table given below. (Leave no cells blank - be certain to enter "0" wherever required. Negative amount should be indicated by a minus sign. Omit $ sign in your response.)
Bal Changes Bal
Dec. 31/Yr2 Dec. 31/Yr2 to Dec.31/Yr5 Yr6 Dec. 31/Yr6
Plant assets $ $ $ $
Goodwill
$ $ $ $
Assets and Liabilities:-
Accounts payable
Accounts receivable
Cash
Goodwill
Inventory
Investments
Non-controlling interest
Notes payable
Notes receivable
Ordinary shares
Other current liabilities
Plant assets
Retained earnings
Salary payable
Trademarks

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