On January 1, Year 4, Handy Company (Handy) purchased 70% of the outstanding common shares of Dandy Limited (Dandy) for $7,000. On that date, Dandy's shareholders' equity consisted of common shares of $390 and retained earnings of $5,900.

The financial statements for Handy and Dandy for Year 9 were as follows:

BALANCE SHEETSAt December 31, Year 9HandyDandyCash$1,480$920Accounts receivable2,9401,190Inventory3,5403,060Property, plant, and equipmentnet4,4803,150Investment in Dandy7,000Total$19,440$8,320Current liabilities$4,500$360Long-term liabilities3,2401,370Common shares1,140390Retained earnings10,5606,200Total$19,440$8,320STATEMENTS OF INCOME AND RETAINED EARNINGSFor year ended December 31, Year 9HandyDandySales$22,600$8,140Cost of sales15,0803,560Gross profit7,5204,580Other revenue1,760Selling and administrative expenses(980(560)Other expenses(5,460)(2,180)Income before income taxes2,8401,840Income tax expense1,000780Net income1,8401,060Retained earnings, beginning of year10,5606,060Dividends paid(1,840)(920)Retained earnings, end of year$10,560$6,200

Additional Information

• In negotiating the purchase price at the date of acquisition, it was agreed that the fair values of all of Dandy's assets and liabilities were equal to their carrying amounts, except for the following:

Carrying AmountFair ValueInventory$2,240$2,340Equipment2,6403,140

• Both companies use FIFO to account for their inventory and the straight-line method for amortizing their property, plant, and equipment. Dandy's equipment had a remaining useful life of 10 years at the acquisition date.
• Goodwill is not amortized on a systematic basis. However, each year, goodwill is evaluated to determine if there has been a permanent impairment. It was determined that goodwill on the consolidated balance sheet should be reported at its recoverable amount of $1,240 on December 31, Year 8, and $1,080 on December 31, Year 9.
• During Year 9, inventory sales from Dandy to Handy were $5,300. Handy's inventories contained merchandise purchased from Dandy for $2,800 at December 31, Year 8, and $3,900 at December 31, Year 9. Dandy earns a gross margin of 50% on its intercompany sales.
• On January 1, Year 5, Handy sold some equipment to Dandy for $2,400 and recorded a gain of $280 before taxes. This equipment had a remaining useful life of eight years at the time of the purchase by Dandy.
• Handy charges $50 per month to Dandy for consulting services and has been doing so throughout Years 8 and 9.
• Handy uses the cost method of accounting for its long-term investment.
• Both companies pay taxes at the rate of 40%.
• Amortization expense is grouped with selling and administrative expenses, and impairment losses are grouped with other expenses.

Required:

(a)Prepare consolidated statement of income for the year ended December 31, Year 9.(Input all values as positive numbers. Omit $ sign in your response.)

Handy CompanyConsolidated Income StatementYear 9Sales$Cost of salesGross profitOther revenueSelling and administrative expenseOther expensesIncome before income taxesIncome tax expenseNet income$Attributable to:Shareholders of HandyNon-controlling interest$

(b-1)Calculate consolidated retained earnings at January 1, Year 9.(Omit $ sign in your response.)

Consolidated retained earnings$ -----------------

(b-2)Prepare consolidated statement of retained earnings for the year ended December 31, Year 9.(Amounts to be deducted should be indicated by a minus sign.Omit $ sign in your response.)

Handy CompanyConsolidated Statement of Retained EarningsFor the Year Ended December 31, Year 9(Click to select)Retained earnings, Dec. 31Retained earnings, Jan. 1$(Click to select)Add: Net incomeLess: Net loss(Click to select)Add: Dividends paidLess: Dividends paid(Click to select)Retained earnings, Dec. 31Retained earnings, Jan. 1$

(c)Not available in Connect.

(d)Calculate goodwill impairment loss and non-controlling interest on the consolidated income statement for the year ended December 31, Year 9, under the identifiable net assets method.(Input all values as positive numbers.Omit $ sign in your response.)

Goodwill impairment loss$Non-controlling interest$

(e)Prepare the consolidated financial statements using the worksheet approach.(Values in the first two columns and last column (the "parent", "subsidiary" and "consolidated" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Entry" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Leave no cells blank - be certain to enter "0" wherever required.Omit $ sign in your response.)

HANDY LTD.CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, YEAR 9EntriesHandyDandyDr.Cr.ConsolidatedYear 9 income statementsSales$$$$$Cost of salesGross profitOther revenueSelling and administrative expenseOther expensesIncome before income taxesIncome tax expenseProfit$$$Attributable to:Non-controlling interest$Shareholders of HandyTotal$$Year 9 retained earnings statementsBalance, January 1$$$$$ProfitDividendsBalance, December 31$$$Total$$Balance Sheet, December 31, Year 9Cash$$$$$Accounts receivableInventoryProperty, plant, and equipmentnetGoodwillDeferred income tax assetInvestment in DandyTotal$$$Current liabilities$$$Long-term liabilitiesCommon sharesRetained earningsNon-controlling interestTotal$$$$$