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 Common shares Retained earnings Total liabilities and shareholders' equity $ 26,400,000 4,000,000 13,200,000 $ 43,600,000 $ 13,800,000 2,000,000 10,400,000 $ 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%. 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 intercompany 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 Notes: I Your Schedule 2 - AD Changes/Amortization/Impairment Loss Schedule should have only 4 columns (in proper sequence) Statements should be prepared in good format (include proper titling and no abbreviations Non-controlling interest should be shown at the end of the Equity section I All calculations must be shown to receive full marks All #s must be given in brackets on Consolidated Statements along with totals 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 Common shares Retained earnings Total liabilities and shareholders' equity $ 26,400,000 4,000,000 13,200,000 $ 43,600,000 $ 13,800,000 2,000,000 10,400,000 $ 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%. 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 intercompany 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 Notes: I Your Schedule 2 - AD Changes/Amortization/Impairment Loss Schedule should have only 4 columns (in proper sequence) Statements should be prepared in good format (include proper titling and no abbreviations Non-controlling interest should be shown at the end of the Equity section I All calculations must be shown to receive full marks All #s must be given in brackets on Consolidated Statements along with totals