On December 31, Year 5, Par Company purchased 70% of the outstanding common shares of Sub Company for $8,750,000 in cash. As of that date, Sub's shareholders' equity consisted of $2 million in common stock and $6 million in retained earnings. For the year ended December 31, Year 10, the income statement by Par and Sub was 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

As of December 31, year 10, the summarized balance sheets of the two companies were as
follows:

	Par	Sub
Current assets	$14,650,000	$8,800,000
non-current assets	20,200,000	17,400,000
Investment in sub	8,750,000
total assets	$43,600,000	26,200,000
Passive	$26,400,000	13,800,000
Common actions	4,000,000	2,000,000
Retained earnings	13,200,000	10,400,000
Total Liability and Net Worth	$43,600,000	$26,200,000

Other Information
1. On December 31, year 5, Sub had inventory with a fair value of $150,000 less
than its book value.
2. On December 31, year 5, Sub had equipment with a fair value of $600,000
greater than its book value. The equipment had an estimated remaining useful life of
8 years.
3. Every year goodwill is evaluated to determine if there has been a
disability. The goodwill had a recoverable value of $3,470,000 as of December 31, year 9
and $3,200,000 as of December 31, year 10.
4. On January 2, year 8, Sub sold a piece of land to Par for $1,200,000. Sub bought the land
on January 1 of year 3 for $800,000. In year 10, Par sold 30% of this land to a stranger.
5. During year 10, Sub sold merchandise to Par for $600,000, 75% of which remains in
Par's inventory as of December 31, year 10. On December 31, year 9, Par's inventory
contained $100,000 of merchandise purchased from Sub. Sub earns a
30% gross margin 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
to. Calculate the consolidated net income for year 10
b. Calculate consolidated retained earnings as of January 1, year 10.
C. Prepare the consolidated financial statements for the year ended
December 31, year 10.
d. Prepare working paper eliminating journal entries for intercompany sale of
inventory for year 10
Suggestions: Goodwill = $4,050,000; AD left December 31 of year 10 = $3,425,000; Total
Consolidated Assets $64,226,000