On January 1, Year 4, Cyrus Inc. paid $915,000 in cash to acquire all of the ordinary shares of Fazli Company. On that date, Fazli's retained earnings were $201,000. All of Fazli's assets and liabilities had fair values equal to carrying amounts except for an investment in bonds, which was worth $13,012 more than carrying amount and will mature on December 31, Year 8. The recoverable amount for goodwill was $200,000 at the end of Years 4 and 5.

In Year 4, Cyrus reported net income from its own operations (exclusive of any income from Fazli) of $126,000 and declared no dividends. In Year 4, Fazli reported net income of $91,000 and paid a $41,000 cash dividend. Cyrus uses the cost method to report its investment in Fazli and uses the effective interest method to amortize premiums or discounts on investment in bonds.The amortization of the acquisition differential pertaining to the investment in bonds was $2,389 in Year 4 and $2,492 in Year 5.

The financial statements for Cyrus and Fazli for the year ended December 31, Year 5, were as follows:

CyrusFazliRevenues and investment income$938,000$854,000Expenses(682,000)(718,000)Profit$256,000$136,000Retained earnings, 1/1/Year 5$824,000$255,000Profit256,000136,000Dividends paid(105,000)(43,000)Retained earnings, 12/31/Year 5$975,000$348,000Equipment (net)$724,000$324,000Investment in Fazli915,0000Investment in bonds0304,000Receivables and inventory424,000494,000Cash101,000157,000Total assets$2,164,000$1,279,000Ordinary shares$568,000$492,000Retained earnings975,000348,000Liabilities621,000439,000Total equities and liabilities$2,164,000$1,279,000

Required:

(a)Make a schedule of changes to the acquisition differential for Years 4 and 5.(Leave no cells blank - be certain to enter "0" wherever required. Negative/Deductible amounts should be indicated by a minus sign. Omit $ sign in your response.)

BalanceBalanceJan. 1ChangesDec. 31Year 4Year 4Year 5Year 5Investment in bonds$$$$Goodwill$$$$

(b)Calculate investment in bonds and goodwill for the consolidated balance sheet at the end of Year 5.(Omit $ sign in your response.)

Investment in bonds$Goodwill$

(c)Calculate investment income from Fazli and investment in Fazli account balances for Cyrus's separate entity financial statements for Year 5, assuming Cyrus uses the:(Omit $ sign in your response.)

(i)Cost method

Cost Method Investment income from Fazli $Investment in Fazli $

(ii)Equity method

Equity Method Investment income from Fazli$Investment in Fazli$

(d)Whether the parent's method of accounting for its investment in Fazli affect the amount reported for expenses in its December 31, Year 5, consolidated income statement?

• Yes
• No

(e)Whether the parent's method of accounting for its investment in Fazli affect the amount reported for investment in bondsin its December 31, Year 5, consolidated balance sheet?

• Yes
• No

(f)What is Cyrus's January 1, Year 5, retained earnings account balance on its separate entity financial statementsassuming Cyrus accounts for its investment in Fazli using the:

(i) Cost method?

(ii) Equity method?

(Omit $ sign in your response.)

Retained earnings(i)Cost Method$(ii)Equity Method$

(g)What are consolidated retained earnings at January 1, Year 5, assuming Cyrus accounts for its investment in Fazli using the:

(i) Cost method?

(ii) Equity method?

(Omit $ sign in your response.)

Retained earnings(i)Cost Method$(ii)Equity Method$