On January 1, Year 1, Par Ltd. purchased 75% of the outstanding common shares of Son Company for $105,000 in cash. On the date of the purchase, Son had common shares of $60,000 and retained earnings of $30,000. Son has a new patent that is not recorded in its books but has a fair value of $15,000. The patent rights extend for another 5 years. The carrying amounts of Son's assets and liabilities were equal to their fair value except for the following items: Carrying value Fair value Inventory 40,000 45,000 Equipment 60,000 50,000 Bond payable 40,000 45,000 The equipment in Son's books has an expected remaining useful life of 5 years and the bond payable matures December 31 Year 5. Due to economic changes the annual goodwill impairment tests resulted in a $2,000 loss in Year 1 and $3,000 loss in Year 3. At December 31, Year 3, Son owed Par $10,000 in an interest-bearing note at 5%. During Year 3, Par paid $22,000 in dividends and Son paid $12,000 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 Par Ltd. Son Company Assets Cash $ 32,000 $ 35,000 Accounts receivable 100,000 40,000 Notes receivable 80,000 Inventory 93,000 80,000 Land 60,000 50,000 Equipment 570,000 288,000 Accumulated depreciation 70,000 40,000 Investment in Son (cost basis) 105,000 $ 970,000 $ 453,000 Liabilities & Shareholders' equity Accounts payable $ 80,000 $ 45,000 Notes payable 10,000 32,000 Bonds payable 180,000 258,000 Common shares 480,000 60,000 Retained earnings 220,000 58,000 $ 970,000 $ 453,000 453 2020 WT1 A2 3 Income Statements For the year ended December 31, Year 3 Son Par Ltd. Company Sales $ 757,000 $ 490,000 Other income 14,000 Cost of goods sold 490,000 290,000 Depreciation/amortization expense 96,000 60,000 Administration expense 45,000 30,000 Other expenses 58,000 80,000 Income tax expense 22,000 10,000 Net income $ 60,000 $ 20,000 Required: a. Prepare the Calculate and allocation of the acquisition differential and the AD changes: amortization/impairment schedules b. Calculate the consolidated net income for Year 3 c. Calculate the consolidated retained earnings at January 1, Year 3 d. Prepare the three (3) consolidated financial statements for Par, December 31, Year 3, using the direct method (in good format and write out all words completely)