On January 1, 2021, Chip Ltd. acquired 80% of the shares of Dip Inc. by issuing shares valued at $3,000,000. On this date, Dip Inc.'s building and machinery had remaining useful lives of 20 years and 10 years, respectively. Both Chip Ltd. and Dip Inc. use straight-line depreciation. The separate entity statements of financial position for Chip Ltd. and Din Inc. just prior to he acquisition are presented below. Statements of Fina As of January 1, 2021 Dip Inc. (Carrying Value) (Fair Value) (Carrying Noncurrent assets: Land Building $ $ 2,750,000 725,000 $700,000 1,300,000 1,500,000 Accumulated depreciation (425,000) (650,000) Machinery 2,750,000 1,300,000 275,000 Accumulated depreciation (1,400,000) (850,000) Total noncurrent assets 3,675,000 1,825,000 Current assets: Inventories 450,000 375,000 162,500 Amounts receivable 675,000 180,000 180,000 Cash 255,000 45,000 45,000 Total current assets 1,380,000 600,000 Total assets Shareholders' equity: $ 5,055,000 $ 2,425,000 Common shares $ 1,875,000 $ Retained earnings 2,205,000 700,000 1,125,000 Total shareholders' equity 4,080,000 1,825,000 Noncurrent liabilities: Long-term loans Current liabilities: Accounts payable Total liabilities Total liabilities and shareholders' equity $ 5,055,000 $ 2,425,000 The separate entity statements for Chip Ltd. and Dip Inc. at the end of 2021 are presented 275,000 275,000 975,000 975,000 325,000 600,000 325,000 Statements of Financial Position As of December 31, 2021 Chip Ltd. Dip Inc. Noncurrent assets: Sales Statements of Income For the year ended December 31, 2021 Chip Ltd. $25,400,000 Dip Inc. $12,750,000 Long-term loan receivable $ 750,000 Dividend Income 560,000 Land Building 2,975,000 655,000 1,900,000 Gain on sale of land 75,000 Other income 65,000 Accumulated depreciation (480,000) (725,000) 26,025,000 12,825,000 Machinery 2,925,000 2,116,000 Accumulated depreciation (915,000) (960,000) Cost of sales 15,240,000 7,012,500 Investment in Dip Inc. 3,000,000 Other operating expenses 9,108,750 4,488,750 Total noncurrent assets 8,255,000 2,986,000 Interest expense 24,000 83,750 Current assets: Inventories 1,100,000 688,250 Total expenses Net income 24,372,750 11,585,000 1,652,250 $ 1,240,000 Amounts receivable 583,000 Cash Total current assets 334,000 2,017,000 166,000 156,000 1,010,250 $ 10,272,000 $ 3,996,250 Total assets Shareholders' equity: Common shares Retained earnings $ 4,875,000 $ 700,000 Statements of Retained Earnings For the year ended December 31, 2021 Retained earnings. December 31) 2020 Net Income Dividends Delcared Retained earnings, December 31, 2021 Chip Ltd. $ 2,205,000 1,652,250 (500,000) $ 3,357,250 Dip Inc. $ 1,125,000 1,240,000 (700,000) $ 1,665,000 3,357,250 Total shareholders' equity 8,232,250 1,665,000 2,365,000 Noncurrent liabilities: Long-term loans Current liabilities: 650,000 1,025,000 Accounts payable Total liabilities 1,389,750 2,039,750 Total liabilities and shareholders' equity $ 10,272,000 606,250 1,631,250 $ 3,996,250 During 2021 Chip Ltd. and Dip Inc. had the following transactions between them: On June 30 2021, Dip Inc. borrowed $750,000 from Chip Ltd. at an interest rate of 15% (simple interest). Interest is to be paid at the end of each calendar year. Dip Inc. did not pay the 2021 interest. During 2021, Dip Inc. sold $5,500,000 of goods to Chip Ltd. At the end of 2021, $1,000,000 of those goods were still in Chip Ltd.'s ending inventory. Dip Inc. charged Chip Ltd. the same price it charges all its other customers. During 2021, Chip Ltd. sold $2,750,000 of goods to Dip Inc. At the end of 2021, $500,000 of those goods were still in Dip Inc.'s ending inventory. Chip Ltd. charged Dip Inc. the same price it charges all its other customers. There was no impairment of goodwill for 2021. The separate-entity statements for Chip Ltd. and Dip Inc. at the end of 2022 are presented below. Statements of Financial Position As of December 31, 2022 Statements of Income For the year ended December 31, 2022 Chip Ltd. $26,750,000 Dip Inc. $11,000,000 Chip Ltd. Dip Inc. Noncurrent assets: Sales Long-term loan receivable $ Dividend income 480,000 Land 325,000 Building 3,800,000 655,000 1,900,000 Gain on sale of machine Other income 120,000 Accumulated depreciation (665,000) (825,000) 27,350,000 11,000,000 Machinery 2,500,000 2,450,000 Accumulated depreciation (1,015,000) (1,020,000) Cost of sales 16,050,000 6,050,000 Investment in Dip Inc. 3,000,000 Other operating expenses 9,572,500 4,950,000 Total noncurrent assets 7,945,000 3,160,000 Interest expense 200,000 180,000 Current assets: Inventories 1,350,000 584,250 Loss on sale of machine Total expenses 100,000 25,922,500 Amounts receivable 626,000 184,000 Net income (loss) $ 1,427,500 11,180,000 $ (180,000) Cash 295,000 Total current assets 2,271,000 143,000 911,250 Total assets Shareholders' equity: $ 10,216,000 $ 4,071,250 Statements of Retained Earnings For the year ended December 31, 2022 Noncurrent liabilities: 1,000,000 Common shares $ 4,875,000 $ Retained earnings Total shareholders' equity 4,044,750 8,919,750 885,000 1,885,000 520,000 1,200,000 776,250 1,296,250 986,250 2,186,250 Long-term loans Current liabilities: Accounts payable Total liabilities Total liabilities and shareholders' equity $ 10,216,000 Additional information for 2022: $ 4,071,250 During 2022, Chip Ltd. purchased $3,000,000 of goods from Dip Inc. At the end of the year, 40% of those goods were still in Chip Ltd.'s ending inventory. During December 2022, Dip Inc. purchased $600,000 of goods from Chip Ltd. At the end of the year, 75% of those goods were still in Dip Inc.'s ending inventory. Both Chip Ltd. and Dip Inc.'s gross margins for these goods were unchanged from previous years. At the end of 2022, Dip Inc. did not pay the interest due on the loan from Chip Ltd. however, both companies had accrued the interest. Required: a) Prepare a set of consolidated statement of financial position at 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 Chip Ltd.'s consolidated retained earnings for 2022. Do not prepare financial statements. Retained earnings, December 31, 2021 Net income Dividends declared Retained earnings, December 31, 2022 Chip Ltd. $ 3,357,250 1,427,500 (740,000) $ 4,044,750 Dip Inc. $ 1,665,000 (180,000) (600,000) $ 885,000