On January 1, 2020, Victory Co. acquired 60% of the shares of Sauce Ltd. by issuing shares valued at $1,500,000. On this date, Sauce Ltd.'s building and machinery had remaining useful lives of 10 years and 5 years, respectively. Both Victory Co. and Sauce Ltd. use straight-line depreciation. The separate-entity statements of financial position for Victory Co. and Sauce Ltd. just prior to the acquisition are presented below. Statements of Financial Position As of January 1, 2020 Victory Co. Sauce Ltd. (Carrying Value) (Carrying Value) (Fair Value) $ Noncurrent assets: Land Building Accumulated depreciation Machinery Accumulated depreciation Total noncurrent assets Current assets: Inventories Amounts receivable Cash Total current assets Total assets 2,600,000 (400,000) 1,750,000 (700,000) 3,250,000 450,000 $ 800,000 1,500,000 1,300,000 (500,000) 1,300,000 100,000 (800,000) 1,950,000 800,000 700,000 500,000 2,000,000 $ 5,250,000 300,000 200,000 100,000 600,000 $ 2,550,000 300,000 200,000 100,000 $ 1,000,000 650,000 1,650,000 Shareholders' equity: Common shares $ 2,200,000 Retained earnings 2,250,000 Total shareholders' equity 4,450,000 Noncurrent liabilities: Long-term loans Current liabilities: Accounts payable 800,000 Total liabilities 800,000 Total liabilities and shareholders' equity $ 5,250,000 500,000 500,000 400,000 400,000 900,000 $ 2,550,000 The separate-entity statements for Victory Co. and Sauce Ltd. at the end of 2020 are presented below. Statements of Financial Position As of December 31, 2020 Statements of Comprehensive Income For the year ended December 31, 2020 Victory Co. Sauce Ltd. Victory Co. $ 20,000,000 240,000 Sauce Ltd. $ 10,000,000 $ 500,000 $ Sales Dividend income Gain on sale of machine Other income 1,350,000 1,500,000 (600,000) 1,300,000 (900,000) 70,000 20,310,000 10,000,000 Noncurrent assets: Long-term loan receivable Land Building Accumulated depreciation Machinery Accumulated depreciation Investment in Sauce Ltd. Total noncurrent assets Current assets: Inventories Amounts receivable Cash Total current assets 3,000,000 (450,000) 2,000,000 (800,000) 1,500,000 5,750,000 2,650,000 Cost of sales Other operating expenses Interest expense Total expenses Net income and comprehensive income 10,000,000 8,860,000 20,000 18,880,000 $ 1,430,000 6,000,000 2,800,000 100,000 8,900,000 $ 1,100,000 1,600,000 600,000 280,000 2,480,000 600,000 300,000 100,000 1,000,000 Total assets Statements of Comprehensive Income For the year ended December 31, 2020 $ 8,230,000 $ 3,650,000 1,000,000 1,350,000 2,350,000 Victory Co. $ 2,250,000 1,430,000 (200,000) $ 3,480,000 Shareholders' equity: Common shares $ 3,700,000 Retained earnings 3,480,000 Total shareholders' equity 7,180,000 Noncurrent liabilities: Long-term loans 650,000 Current liabilities: Accounts payable 400,000 Total liabilities 1,050,000 Total liabilities and shareholders' equity $ 8,230,000 Retained earnings, December 31, 20x1 Net income Dividends declared Retained earnings, December 31, 2020 Sauce Ltd. $ 650,000 1,100,000 (400,000) $ 1,350,000 1,000,000 300,000 1,300,000 3,650,000 $ During 2020 Victory Co. and Sauce Ltd. had the following transactions between them: . On June 30 2020, Sauce Ltd. borrowed $500,000 from Victory Co. at an interest rate of 10% (simple interest). Interest is to be paid at the end of each calendar year. Sauce Ltd. did not pay the 2020 interest. . During 2020, Sauce Ltd. sold $4,000,000 of goods to Victory Co. At the end of 2020, $1,000,000 of those goods were still in Victory Co.'s ending inventory. Sauce Ltd. charged Victory Co. the same price it charges all its other customers. . During 2020, Victory Co. sold $2,000,000 of goods to Sauce Ltd. At the end of 2020, $400,000 of those goods were still in Sauce Ltd.'s ending inventory. Victory Co. charged Sauce Ltd. the same price it charges all its other customers. There was no impairment of goodwill for 2020. The separate-entity statements for Victory Co. and Sauce Ltd. at the end of 2021 are presented below. Statements of Financial Position As of December 31, 2021 Statements of Comprehensive Income For the year ended December 31, 2021 Victory Co. Sauce Ltd. Sauce Ltd. $ 11,000,000 $ Sales Dividend income Gain on sale of machine Other income Victory Co. $ 22,000,000 360,000 100,000 120,000 22,580,000 1,350,000 1,500,000 (700,000) 1,875,000 (645,000) 11,000,000 Noncurrent assets: Long-term loan receivable Land Building Accumulated depreciation Machinery Accumulated depreciation Investment in Sauce Ltd. Total noncurrent assets Current assets: Inventories Amounts receivable Cash Total current assets 3,800,000 (562,000) 2,300,000 (680,000) 1,500,000 6,358,000 3,380,000 Cost of sales Other operating expenses Interest expense Total expenses Net income and comprehensive income 13,000,000 8,640,000 200,000 21,840,000 740,000 6,600,000 2,920,000 180,000 9,700,000 $ 1,300,000 1,300,000 1,200,000 640,500 3,140,500 550,000 770,000 525,000 1,845,000 Total assets Statements of Comprehensive Income For the year ended December 31, 2021 $ ,498,500 $ 5,225,000 $ 1,000,000 2,050,000 3,050,000 Victory Co. $ 3,480,000 740,000 (740,000) $ 3,480,000 Retained earnings, December 31, 20x1 Net income Dividends declared Retained earnings, December 31, 2020 Sauce Ltd. $ 1,350,000 1,300,000 (600,000) $ 2,050,000 Shareholders' equity: Common shares $ 3,700,000 Retained earnings 3,480,000 Total shareholders' equity 7,180,000 Noncurrent liabilities: Long-term loans 1,800,000 Current liabilities: Accounts payable 518,500 Total liabilities 2,318,500 Total liabilities and shareholders' equity $ 9,498,500 1,200,000 975,000 2,175,000 5,225,000 $ Additional information for 2021: . During 2021, Victory Co. purchased $1,600,000 of goods from Sauce Ltd. At the end of the year, 50% of those goods were still in Victory Co.'s ending inventory. During December 2021, Sauce Ltd. purchased $400,000 of goods from Victory Co. At the end of the year, 100% of those goods were still in Sauce Ltd.'s ending inventory. Both Victory Co. and Sauce Ltd.'s gross margins for these goods were unchanged from previous years. At the end of 2021, Sauce Ltd. did not pay the interest due on the loan from Victory Co. however, both companies had accrued the interest. Required: a) Prepare a set of consolidated statement of financial position at the acquisition date using the Fair Value Enterprise (FVE) approach. b) Prepare a set of consolidated financial statements for 2021 using the Fair Value Enterprise (FVE) approach. c) Calculate Victory Co.'s consolidated retained earnings for 2021. Do not prepare financial statements. On January 1, 2020, Victory Co. acquired 60% of the shares of Sauce Ltd. by issuing shares valued at $1,500,000. On this date, Sauce Ltd.'s building and machinery had remaining useful lives of 10 years and 5 years, respectively. Both Victory Co. and Sauce Ltd. use straight-line depreciation. The separate-entity statements of financial position for Victory Co. and Sauce Ltd. just prior to the acquisition are presented below. Statements of Financial Position As of January 1, 2020 Victory Co. Sauce Ltd. (Carrying Value) (Carrying Value) (Fair Value) $ Noncurrent assets: Land Building Accumulated depreciation Machinery Accumulated depreciation Total noncurrent assets Current assets: Inventories Amounts receivable Cash Total current assets Total assets 2,600,000 (400,000) 1,750,000 (700,000) 3,250,000 450,000 $ 800,000 1,500,000 1,300,000 (500,000) 1,300,000 100,000 (800,000) 1,950,000 800,000 700,000 500,000 2,000,000 $ 5,250,000 300,000 200,000 100,000 600,000 $ 2,550,000 300,000 200,000 100,000 $ 1,000,000 650,000 1,650,000 Shareholders' equity: Common shares $ 2,200,000 Retained earnings 2,250,000 Total shareholders' equity 4,450,000 Noncurrent liabilities: Long-term loans Current liabilities: Accounts payable 800,000 Total liabilities 800,000 Total liabilities and shareholders' equity $ 5,250,000 500,000 500,000 400,000 400,000 900,000 $ 2,550,000 The separate-entity statements for Victory Co. and Sauce Ltd. at the end of 2020 are presented below. Statements of Financial Position As of December 31, 2020 Statements of Comprehensive Income For the year ended December 31, 2020 Victory Co. Sauce Ltd. Victory Co. $ 20,000,000 240,000 Sauce Ltd. $ 10,000,000 $ 500,000 $ Sales Dividend income Gain on sale of machine Other income 1,350,000 1,500,000 (600,000) 1,300,000 (900,000) 70,000 20,310,000 10,000,000 Noncurrent assets: Long-term loan receivable Land Building Accumulated depreciation Machinery Accumulated depreciation Investment in Sauce Ltd. Total noncurrent assets Current assets: Inventories Amounts receivable Cash Total current assets 3,000,000 (450,000) 2,000,000 (800,000) 1,500,000 5,750,000 2,650,000 Cost of sales Other operating expenses Interest expense Total expenses Net income and comprehensive income 10,000,000 8,860,000 20,000 18,880,000 $ 1,430,000 6,000,000 2,800,000 100,000 8,900,000 $ 1,100,000 1,600,000 600,000 280,000 2,480,000 600,000 300,000 100,000 1,000,000 Total assets Statements of Comprehensive Income For the year ended December 31, 2020 $ 8,230,000 $ 3,650,000 1,000,000 1,350,000 2,350,000 Victory Co. $ 2,250,000 1,430,000 (200,000) $ 3,480,000 Shareholders' equity: Common shares $ 3,700,000 Retained earnings 3,480,000 Total shareholders' equity 7,180,000 Noncurrent liabilities: Long-term loans 650,000 Current liabilities: Accounts payable 400,000 Total liabilities 1,050,000 Total liabilities and shareholders' equity $ 8,230,000 Retained earnings, December 31, 20x1 Net income Dividends declared Retained earnings, December 31, 2020 Sauce Ltd. $ 650,000 1,100,000 (400,000) $ 1,350,000 1,000,000 300,000 1,300,000 3,650,000 $ During 2020 Victory Co. and Sauce Ltd. had the following transactions between them: . On June 30 2020, Sauce Ltd. borrowed $500,000 from Victory Co. at an interest rate of 10% (simple interest). Interest is to be paid at the end of each calendar year. Sauce Ltd. did not pay the 2020 interest. . During 2020, Sauce Ltd. sold $4,000,000 of goods to Victory Co. At the end of 2020, $1,000,000 of those goods were still in Victory Co.'s ending inventory. Sauce Ltd. charged Victory Co. the same price it charges all its other customers. . During 2020, Victory Co. sold $2,000,000 of goods to Sauce Ltd. At the end of 2020, $400,000 of those goods were still in Sauce Ltd.'s ending inventory. Victory Co. charged Sauce Ltd. the same price it charges all its other customers. There was no impairment of goodwill for 2020. The separate-entity statements for Victory Co. and Sauce Ltd. at the end of 2021 are presented below. Statements of Financial Position As of December 31, 2021 Statements of Comprehensive Income For the year ended December 31, 2021 Victory Co. Sauce Ltd. Sauce Ltd. $ 11,000,000 $ Sales Dividend income Gain on sale of machine Other income Victory Co. $ 22,000,000 360,000 100,000 120,000 22,580,000 1,350,000 1,500,000 (700,000) 1,875,000 (645,000) 11,000,000 Noncurrent assets: Long-term loan receivable Land Building Accumulated depreciation Machinery Accumulated depreciation Investment in Sauce Ltd. Total noncurrent assets Current assets: Inventories Amounts receivable Cash Total current assets 3,800,000 (562,000) 2,300,000 (680,000) 1,500,000 6,358,000 3,380,000 Cost of sales Other operating expenses Interest expense Total expenses Net income and comprehensive income 13,000,000 8,640,000 200,000 21,840,000 740,000 6,600,000 2,920,000 180,000 9,700,000 $ 1,300,000 1,300,000 1,200,000 640,500 3,140,500 550,000 770,000 525,000 1,845,000 Total assets Statements of Comprehensive Income For the year ended December 31, 2021 $ ,498,500 $ 5,225,000 $ 1,000,000 2,050,000 3,050,000 Victory Co. $ 3,480,000 740,000 (740,000) $ 3,480,000 Retained earnings, December 31, 20x1 Net income Dividends declared Retained earnings, December 31, 2020 Sauce Ltd. $ 1,350,000 1,300,000 (600,000) $ 2,050,000 Shareholders' equity: Common shares $ 3,700,000 Retained earnings 3,480,000 Total shareholders' equity 7,180,000 Noncurrent liabilities: Long-term loans 1,800,000 Current liabilities: Accounts payable 518,500 Total liabilities 2,318,500 Total liabilities and shareholders' equity $ 9,498,500 1,200,000 975,000 2,175,000 5,225,000 $ Additional information for 2021: . During 2021, Victory Co. purchased $1,600,000 of goods from Sauce Ltd. At the end of the year, 50% of those goods were still in Victory Co.'s ending inventory. During December 2021, Sauce Ltd. purchased $400,000 of goods from Victory Co. At the end of the year, 100% of those goods were still in Sauce Ltd.'s ending inventory. Both Victory Co. and Sauce Ltd.'s gross margins for these goods were unchanged from previous years. At the end of 2021, Sauce Ltd. did not pay the interest due on the loan from Victory Co. however, both companies had accrued the interest. Required: a) Prepare a set of consolidated statement of financial position at the acquisition date using the Fair Value Enterprise (FVE) approach. b) Prepare a set of consolidated financial statements for 2021 using the Fair Value Enterprise (FVE) approach. c) Calculate Victory Co.'s consolidated retained earnings for 2021. Do not prepare financial statements