On December 31, Year 2, Palm Inc. purchased 80% of the outstanding ordinary shares of Storm Company for $350,000. At that date, Storm had ordinary shares of $240,000 and retained earnings of $64,000. 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 $44,000 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 $36,000. 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 Storm $ 200,000 $270,000 350,000 86,000 Assets Plant assets (net) Investment in Storm Other investments Notes receivable Inventory Accounts receivable Cash 140,000 92,000 24,000 $962,000 26,000 14,000 220,000 180,000 34,000 $674,000 Shareholders' Equity and liabilities Ordinary shares Retained earnings Notes payable Other current liabilities $540,000 150,000 150,000 14,000 $240,000 190,000 120,000 54,000 INCOME STATEMENTS For the year ended December 31, Year 6 Sales Cost of goods sold Gross profit Selling expenses Other expenses Interest and dividend income Profit $ 910,000 (658,000) $ 252,000 (26,000) (156,000) 38,000 $ 108,000 Storm $ 555,000 (380,000) $ 175,000 (39,000) (80,000) 6,000 $ 62,000 Additional Information At December 31, Year 6, an impairment test of Storm's goodwill revealed the following: $ 50,000 69,000 Fair value less disposal costs based on recent offer from prospective purchaser Value in use based on undiscounted future net cash flows Value in use based on discounted future net cash flows using a discount rate of: 8%, which is Storm's incremental borrowing rate 2%, which is the risk-free rate on government bonds 42,000 47,000 An impairment test indicated that the trademarks had a recoverable amount of $14,350. The impairment loss on these assets occurred entirely in Year 6. On December 26, Year 6, Palm declared dividends of $40,000, while Storm declared dividends of $24,000. 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.) Palm Inc. Consolidated Income Statement For the Year Ended December 31, Year 6 0 0 Attributable to: Palm's shareholders Non-controlling interest Required: (a) Prepare consolidated financial statements. (Input all values as positive numbers.) Palm Inc. Consolidated Income Statement For the Year Ended December 31, Year 6 0 Assets Cash Current assets Interest and dividend income 0 Attributable to: Palm's shareholders Non-controlling interest Required: (a) Prepare consolidated financial statements. (Input all values as positive numbers.) Palm Inc. Consolidated Income Statement For the Year Ended December 31, Year 6 0 Current assets Interest and dividend income Investment Land Sales 0 Attributable to: Palm's shareholders Non-controlling interest Palm Inc. Consolidated Statement of Financial Position As at December 31, Year 6 Assets Plant assets Investments Goodwill Accounts receivable Notes receivable Inventory Cash Trademarks $ 0 Liabilities and Equity Accounts payable Other current liabilities Notes payable Ordinary shares Retained earnings (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 "O" wherever required. Negative amount should be indicated by a minus sign. Omit $ sign in your response.) Ba| Dec. 31/Yr2 Changes Dec. 31/9r2 to Dec. 31/Yr5 $ Yr6 Bal Dec. 31/Yr6 $ $ $ Plant assets Goodwill $ $ $ $
