On January 1, 2014, Prince Corporation acquired 70% of the 100,000 outstanding voting shares of Song Limited for a cash consideration of $1,015,000. On that date, shares of Song Limited were trading for $14.00 per share on the national stock exchange. The shareholders equity of Song Limited on the acquisition date consisted of common shares with a carrying value of $710,000, contributed surplus of $110,000 and retained earnings of $320,000. All the assets and liabilities of Song were fairly valued on its balance sheet except that capital assets were undervalued by $120,000 and long-term debt with a book value of $210,000 had a fair value of $160,000. The capital assets had a remaining useful life of six years and the long-term debt matured on December 31, 2018.

Prince Corporation accounts for its investment in Song Limited using the cost method and values the non-controlling interest in Song Limited at its fair value as determined from the market value of its shares on the acquisition date. The Financial statements of the two companies for the year ended December 31, 2016 appear on the next page.

Additional information:

• Goodwill impairment tests are carried out annually. During 2014, goodwill impairment was determined to be $26,000 on the parents share of goodwill and $5,000 on the NCI share. In 2016, impairment in the amounts of $35,000 and $6,000 respectively was found to have occurred.
• Song Company declared its 2016 dividends on December 15, 2016, with payment to be made on January 15, 2017.
• During 2016, Prince charged rental fees of $30,000 to Song. Prince estimated that its cost to provide the rental services to Song was $20,000 for the year. At December 31, 2016, Song owed Prince $7,500 for the last quarters rental services.
• Ignore income taxes on the allocation and amortization of the acquisition differential.

  Required:

  Prepare the consolidated financial statements of Prince Corporation and its subsidiary for the year ended December 31, 2016.

BALANCE SHEETS as at December 31, 2016 $ Cash Accounts receivable Inventories Capital assets, net Investment in Song Company PRINCE CORP $ 130,000 290,000 516,000 1,210,000 1,160,000 $ 3,306,000 SONG CO 70,000 200,000 360,000 1,110,000 $ 1,740,000 $ 140,000 210,000 710,000 Current liabilities Long-term debt Common shares Preferred shares Contributed surplus Retained earnings 240,000 550,000 1,010,000 410,000 210,000 886,000 3,306,000 110,000 570,000 1,740,000 $ $ STATEMENTS OF INCOME AND RETAINED EARNINGS for the year ended December 31, 2016 SONG CO 3,200,000 $ Sales Dividend income Other revenues 20,000 Cost of goods sold Amortization expense Interest expense Other expenses Income tax expense PRINCE CORP $ 4,300,000 96,000 104,000 4,500,000 2,580,000 150,000 52,000 1,070,000 200,000 4,052,000 448,000 662,000 (224,000) 886,000 3,220,000 1,920,000 130,000 10,000 770,000 140,000 2,970,000 250,000 440,000 (120,000) 570,000 Net income for the year Opening retained earnings Dividends declared Ending retained earnings $ $ BALANCE SHEETS as at December 31, 2016 $ Cash Accounts receivable Inventories Capital assets, net Investment in Song Company PRINCE CORP $ 130,000 290,000 516,000 1,210,000 1,160,000 $ 3,306,000 SONG CO 70,000 200,000 360,000 1,110,000 $ 1,740,000 $ 140,000 210,000 710,000 Current liabilities Long-term debt Common shares Preferred shares Contributed surplus Retained earnings 240,000 550,000 1,010,000 410,000 210,000 886,000 3,306,000 110,000 570,000 1,740,000 $ $ STATEMENTS OF INCOME AND RETAINED EARNINGS for the year ended December 31, 2016 SONG CO 3,200,000 $ Sales Dividend income Other revenues 20,000 Cost of goods sold Amortization expense Interest expense Other expenses Income tax expense PRINCE CORP $ 4,300,000 96,000 104,000 4,500,000 2,580,000 150,000 52,000 1,070,000 200,000 4,052,000 448,000 662,000 (224,000) 886,000 3,220,000 1,920,000 130,000 10,000 770,000 140,000 2,970,000 250,000 440,000 (120,000) 570,000 Net income for the year Opening retained earnings Dividends declared Ending retained earnings $ $