On December 31, Year 2, Palm Inc. purchased 80% of the outstanding ordinary shares of Storm Company for $370,000. At that date, Storm had ordinary shares of $260,000 and retained earnings of $66,000. In negotiating the purchase price, it was agreed that the assets on Storm's statement of financial position were fairly valued except for plant assets, which had a $46,000 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 $42,000. 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 Assets Plant assets (net) Investment in Storm Other investments Notes receivable Inventory Accounts receivable Cash Shareholders' Equity and Liabilities Ordinary shares Retained earnings Notes payable Other current liabilities Accounts payable INCOME STATEMENTS For the year ended December 31, Year 6 Palm Storm $ 290,000 370,000 88,000 $220,000 28,000 16,000 160,000 94,000 26,000 $1,028,000 240,000 190,000 36,000 $730,000 $ 560,000 $260,000 170,000 210,000 160,000 130,000 16,000 122,000 $1,028,000 56,000 74,000 $730,000 Sales Cost of goods sold Palm Storm $ 930,000 (668,000) $ 575,000 (390,000) Gross profit $ 262.000 $ 185,000 Selling expenses (28,000) (41,000) Other expenses (160,000) (84,000) Interest and dividend income 40,000 8,000 Profit $ 114,000 $ 68,000