On January 1, 2016, Pamela Company acquired 8,000 (80%) of the outstanding common shares of Steve Ltd. for $145,600 in cash. On that date, Steve Ltd. had common shares of $50,000 and retained earnings of $72,000. At acquisition, the identifiable net assets and liabilities of Steve had fair values equal to carrying values, except for the following:

1. Building, had a fair value of $80,000, and a net book value of $60,000;
2. Land, had a fair value of $10,000 more than the carrying value;
3. Inventory, had a fair value $5,000 less than carrying value;
4. Bonds payable, had a fair value of $14,000 greater than the carrying value.

The building had a remaining useful life of 20 years on January 1, 2016. The bonds mature on December 31, 2023.

The financial statements for the December 31, 2021 year-end are as follows:

Income Statements
	Pamela	Steve
Sales	$600,000	$420,000
Rent revenue	27,000
Dividend revenue	7,200
	$634,200	$420,000
Cost of goods sold	200,000	160,000
Depreciation	55,000	20,000
Interest expense	36,000	6,700
Other expenses	32,000	47,000
	323,000	233,700
Net income	$311,200	$186,300
Retained Earnings Statements
	Pamela	Steve
Balance, January 1, 2021	$287,700	$ 72,000
Net income	311,200	186,300
	$598,900	$258,300
Dividends	45,000	9,000
Balance, December 31, 2021	$553,900	$249,300
Statement of Financial Position
	Pamela	Steve
Cash	$ 13,800	$ 9,750
Accounts receivable	61,000	27,000
Inventory	240,000	96,000
Investment in Steve	145,600
Plant and equipment, net	650,000	220,000
Land	250,000	70,000
Total assets	$1,360,400	$422,750
Accounts payable	$ 86,500	$ 42,000
Bonds payable	420,000	81,450
Common shares	300,000	50,000
Retained earnings	553,900	249,300
Total equities	$1,360,400	$422,750

ADDITIONAL INFORMATION:

In 2016, a goodwill impairment loss of $9,000 was recorded. Subsequent goodwill testing yielded no further evidence of impairment until 2021, when a decline in the recoverable amount of Steve Ltd. occurred and management decided to reflect an impairment loss of $7,000 in the years consolidated statements.

On December 31, 2021, Pamela Company owes Steve Ltd. $16,000.

Pamela uses the fair value enterprise (FVE) method for preparing its consolidated financial statements.

REQUIRED:

Prepare all answers for the following questions on the Excel spreadsheet provided. Show all supporting calculations.

1. Prepare the following 2021 consolidated financial statements: (21 marks)

1. Income statement (14 marks)
2. Retained earnings statement (7 marks)

2. Calculate the following balances that would appear on the consolidated statement of financial position for the period ended December 31, 2021. Show your complete calculation including all numbers used to arrive at consolidated amounts. (11 marks):

1. Accounts receivable (1 mark)
2. Investment in Steve (1 mark)
3. Plant and equipment, net (1 mark)
4. Land (2 marks)
5. Bonds payable (1 mark)
6. Common shares (1 mark)
7. NCI (4 marks)

3. Assume that Pamela Company uses the equity method to account for its investment in Steve Ltd. Provide the balances for the following: (6 marks)

1. Investment income (Equity method income) for 2021 (1 mark)
2. Investment in Steve Company, December 31, 2021 (4 marks)
3. Retained earnings, December 31, 2021 (1 mark)