On December 31, Year 4, Prospect Company purchased 60% of the outstanding common shares of StoryCompany for $1,320,000. On that date, Storyhad common shares of $500,000 and retained earnings of $110,000. In negotiating the purchase price, it was agreed that recorded assets and liabilities were fairly valued except for equipment, which had a $24,000 excess of carrying amount over fair value, and land, which had a $148,000 excess of fair value over carrying amount. The equipment had a remaining useful life of six years at the acquisition date and no salvage value. Story did not record the fair value deficiency on the equipment because Story felt that it would recover the carrying amount of this equipment through future cash flows. In addition, Story registered and owns a number of Internet domain names, which are estimated to be worth $98,000. The right to the names expires in 12 years but the registration can be renewed for 20 years every 20 years, for a nominal fee.

The adjusted trial balances for Prospect and Story for the year ended December 31, Year 8, were as follows:

ProspectStoryCash$185,000$93,000Accounts receivable254,000244,000Inventory630,000311,000Land740,000350,000Building (net)890,000675,000Equipment (net)726,000403,000Investment in Story663,000-Cost of goods purchased2,394,0002,407,000Change in inventory96,000(48,000)Amortization expense204,000102,000Income taxes and other expenses906,000450,000Dividends paid390,000250,000Total debits$8,078,000$5,237,000Accounts payable$483,000$332,000Long-term debt290,400756,000Common shares1,200,000500,000Retained earnings, beginning609,000279,000Sales5,120,0003,370,000Other revenues111,000Equity method income from Story264,600Total credits$8,078,000$5,237,000

Additional Information:

• Every year, goodwill is evaluated to determine if there has been a loss. The recoverable amount for Story's goodwill was valued at $98,000 at the end of Year 7 and $75,000 at the end of Year 8.
• Prospect's inventories contained $450,000 of merchandise purchased from Story at December 31, Year 8, and $400,000 at December 31, Year 7. During Year 8, sales from Story to Prospect were $670,000. Merchandise was priced at the same profit margin as applicable to other customers. Prospect owed $186,000 to Story at December 31, Year 8, and $194,000 at December 31, Year 7.
• On July 1, Year 5, Story purchased a building from Prospect for $786,000. The building had an original cost of $836,000 and a carrying amount of $636,000 on Prospect's books on July 1, Year 5. Story estimated the remaining life of the building was 15 years at the time of the purchase from Prospect.
• Story rented another building from Prospectthroughout the year for $8,000 per month.
• Prospectuses the equity method of accounting for its long-term investments.
• Both companies pay tax at the rate of 40%. Ignore deferred income taxes when allocating and recording changes to the acquisition differential.

Required:

(a)Prepare a consolidated income statement for the year ended December 31, Year 8.(Enter your answers in thousands of dollars. Round your "Shareholders of Prospect" and "Non-controlling interest" answers to 1 decimal place. Input all values as positive numbers.)

(b)Prepare the current assets; property, plant, and equipment; and intangible assets sections of the consolidated balance sheet at December 31, Year 8.(Enter your answers in thousands of dollars.)

(c)Calculate non-controlling interest on the consolidated balance sheet at December 31, Year 7.(Enter your answer in thousands of dollars. Round your answer to 1 decimal place.Omit $ sign in your response.)

Non-controlling interest$

(d)If Prospect had used the cost method instead of the equity method of accounting for its investment in Story, would Prospect's net income for Year 8 increase, decrease, or remain the same on

(i) its separate-entity income statement?

• increase
• decrease
• remains the same

(ii) the consolidated income statement?

• decrease
• increase
• remains the same