On December 31, Year 5, Par Company purchased 70% of the outstanding common shares of Sub Company for $9,100,000 in cash. On that date, the shareholders' equity of Sub consisted of $2 million in common shares and $6 million in retained earnings. For the year ended December 31, Year 10, the income statements for Par and Sub were as follows:

Par sub

Sales $ 24,800,000 $ 12,000,000

Other Income 4,000,000 1,000,000

Cost of goods sold 18,000,000 8,200,000

Depreciation expense 3,400,000 1,800,000

Other expenses 3,000,000 1,200,000

Income tax 1,200,000 400,000

Net income $ 3,200,000 $ 1,400,000

At December 31, Year 10, the condensed balance sheets for the two companies were as follows:

Par Sub

Current assets $ 14,300,000 $ 8,800,000

Non-current assets 20,200,000 17,400,000

Investment in Sub 9,100,000

Total assets $ 43,600,000 $ 26,200,000

Liabilities $ 26,400,000 $ 13,800,000

Common shares 4,000,000 2,000,000

Retained earnings 3,200,000 10,400,000

Total liabilities and S.H Equity $ 43,600,000 $ 26,200,000

Other information

1. On December 31, Year 5, Sub had inventory with a fair value that was $120,000 less than its carrying value.

2. On December 31, Year 5, Sub had equipment with a fair value that was $500,000 greater than its carrying value. The equipment had an estimated remaining useful life of 10 years.

3. Each year, goodwill is evaluated to determine if there has been a permanent impairment. Goodwill had a recoverable value of $3,970,000 at December 31, Year 9 and $3,500,000 at December 31, Year 10.

4. On January 2, Year 8, Sub sold land to Par for $1,200,000. Sub purchased the land on January 1, Year 3 for $800,000. In Year 10, Par sold 30% of this land to an outsider.

5. During Year 10, Sub sold merchandise to Par for $600,000, 75% of which remains in Par's inventory at December 31, Year 10. On December 31, Year 9, the inventory of Par contained $100,000 of merchandise purchased from Sub. Sub earns a gross margin of 25% on its sales.

6. During Year 10, Par declared and paid dividends of $2,600,000, while Sub declared and paid dividends of $800,000.

7. Par accounts for its investment in Sub using the cost method.

8. Both companies pay income tax at the rate of 40%.

Required

a. Calculate the consolidated net income for Year 10

b. Calculate the consolidated retained earnings at January 1, Year 10.

c. Prepare the consolidated financial statements for the year ended December 31, Year 10.

d. Prepare the working paper elimination journal entries for the inter company sale of inventory for Year 10

Hints: Goodwill = $4,620,000; AD remaining December 31, Year 10 = $3,750,000; Total Consolidated assets $64,214,500