On January $1,$ Year $1,$ Dig Ltd purchased $90\%$ of the outstanding common shares of Fill Ltd for $$112,000$ in cash. On the date of the purchase, Fill had common shares of $$35,000$ and retained earnings of $$44,000.$

Fill has a new license that is not recorded in its books but has a fair value of $$12,000.$ The license extends for another $4$ years. The carrying amounts of Fill$$s assets and liabilities were equal to their fair value except for the following:

Carrying Value Fair Value

Inventory $$38,000$ $$42,000$

Equipment $$65,000$ $$59,000$

Bond payable $$40,000$ $$43,000$

The equipment in Fill$$s books has an expected remaining useful life of $6$ years and the bond payable matures December $31$ Year $4.$ Due to economic changes the annual goodwill impairment tests resulted in a $$2,500$ loss in Year $2$ and $$5,500$ loss in Year $3.$

At December $31,$ Year $3,$ Fill owed Dig $$10,000$ in an interest bearing note at $5\%($note was issued in Year $2).$ During Year $3,$ Dig paid $$22,000$ in dividends and Fill paid $$15,000$ in dividends.

The income statements and balance sheets for both companies for the year ended Year $3$ are as follows:

Balance Sheets

At December $31,$ Year $3$

Assets Dig Ltd Fill Ltd

Cash $$30,000$ $$22,000$

Accounts receivable $$104,000$ $$41,000$

Notes receivable $$79,000-$

Inventory $$99,000$ $$68,000$

Land $$115,000$ $$62,000$

Equipment $$515,000$ $$312,000$

Accumulated depreciation $$112,000$ $$85,000$

Investment in Fill $($cost basis$)$ $$112,000-$

Liabilities & Shareholders$$ Equity Dig Ltd Fill Ltd

Accounts payable $$62,000$ $$41,000$

Notes payable $$12,000$ $$40,000$

Bonds payable $$230,000$ $$202,000$

Common shares $$338,000$ $$35,000$

Retained earnings $$300,000-$$$102,000$

Income Statements

For the year ended December $31,$ Year $3$

Dig Ltd Fill Ltd

Sales $$640,000$ $$390,000$

Other income $$25,000-$

Cost of goods sold $$385,000$ $$182,000$

Depreciation$/$amortization expense $$32,000$ $$22,000$

Administration expense $$88,000$ $$64,000$

Other expenses $$49,000$ $$45,000$

Income tax expense $$35,000$ $$15,000$

Net income $$76,000$ $$62,000$

Required:

$1.$ a$.$ Prepare the Calculate and Allocation of the Acquisition Differential and the AD amortization$/$impairment schedules

$2.$ b$.$ Calculate the consolidated net income for Year $3$

$3.$ c$.$ Calculate the consolidated retained earnings at January $1,$ Year $3$

$4.$ d$.$ Prepare the three $(3)$ consolidated financial statements for Dig, December $31,$ Year $3,$ using the direct approach $($in good format and write out all words completely$)$

$$ Hints: Goodwill $=$ $$38,444.$

$$ AD left Dec. $31,$ Year $3=$ $$29,694.$

$$ Total Consolidated Assets $=$ $$1,270,444.$

$$ Given $2$ separate lines for Equipment less accumulated depreciation on Cons BS hence cannot net