On January 1, 20x3, Appliance Outlets had the following balances in its shareholders equity accounts: Common Stock, $1,425,000, and Retained Earnings, $450,000. General Appliances acquired 64,000 (80%) shares of Appliance Outlets common stock for $1,700,000 on that date. The fair value of the Property, Plant, and Equipment was $50,000 in excess of Appliance Outlets book value. Also, General Appliances identified an unrecorded Patent with a fair value of $70,000. The PP&E had an expected remaining useful life of ten years and the Patent four years.

Appliance Outlets issued $500,000 of 8-year, 11% bonds on December 31,20X2. The bonds sold for $476,000. General Appliances purchased one-half of these bonds in the market on January 1. 20x5, for $256,000. Both companies use the straight-line method of amortization of premiums and discounts.

General Appliances sold $1,000,000 of inventory to Appliance Outlets during 20x6 with a markup of 30%. Appliance Outlets had $500,000 (General Appliances cost) of General Appliances inventory unsold in their beginning inventory and $400,000 (General Appliances cost) unsold in their ending inventory.

On July 1, 20x6, General Appliances sold to Appliance Outlets an old building and land with book values of $100,000, and $67,500 respectively. The building had a remaining life of 10 years and a $30,000 salvage value. The sale was made for $195,000 ($110,000 applied to building and $85,000 to land) The building is being depreciated on a straight-line basis. Appliance Outlets paid $20,000 in cash and signed a mortgage note with its parent for the balance. Interest, at 11% of the unpaid balance, and principal payments are due annually beginning July 1, 20x7.

The trial balances of the two companies at December 31, 20x6, were as follows:

Prepare the consolidated financial statements of General Appliances and its subsidiary for the year ended December 31, 20x6. Include all schedules and reconciliations necessary.

Appliance Outlets General Cash Accounts Receivable (net) Interest Receivable Inventory Inveatment in Appliance Outlets Investment in 11% bonds Investment in Mortgage Property, Plant and Equipment Accumulated Depreciation Accounts Payable Interest Payable Bonds Payable (11%) Discount on Bonds Payable Mortgage Payable Common Stock Retained Earnings Sales Gain on Sale of Building Interest Income Dividend Income Cost of Goods Sold Depreciation Expense Interest Expense Other Expenses Dividends Declared Appliances 404,486 752,500 9,625 1,950,000 1,700,000 254,000 175,000 9,000,000 (1,695,000) (670,000) (18,333) (2,000,000) 10,470 72,625 105,000 900,000 2,950,000 (940,000) (80,000) (9,625) (500,000) 12,000 (175,000) (7,750,000) (1,425,000) (770,000) 9,800,000) (3,000,000) (1,011,123) (27,500) (36,125) (48,000) 4,940,000 717,000 223,000 2,600,000 320,000 0 1,700,000 95,950 67,544 936,506 60,000 0