On December 31, Year 5, Par Company purchased 70% of the outstanding common shares of Sub Company for $8,750,000 million 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	$14,650,000	$8,800,000
Non-current assets	20,200,000	17,400,000
Investment in Sub	8,750,000
Total assets	$43,600,000
Liabilities	$26,400,000	13,800,000
Common shares	4,000,000	2,000,000
Retained earnings	13,200,000	10,400,000
Total liabilities and shareholders equity	$43,600,000	$26,200,000

Other information 1. On December 31, Year 5, Sub had inventory with a fair value that was $150,000 less than its carrying value. 2. On December 31, Year 5, Sub had equipment with a fair value that was $600,000 greater than its carrying value. The equipment had an estimated remaining useful life of 8 years. 3. Each year, goodwill is evaluated to determine if there has been a permanent impairment. Goodwill had a recoverable value of $3,470,000 at December 31, Year 9 and $3,200,000 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 Pars 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 30% 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 eliminating journal entries for the intercompany sale of inventory for Year 10 Hints: Goodwill = $4,050,000; AD left Dec. 31, Year 10 = $3,425,000; Total Consolidated assets $64,226,000