On January 1 Year 4. Meyers Ltd. purchased 80% of the outstanding common shares of Norris Company for $90,000 in cash. On the date of the purchase. Norris had common shares of $38.000 and retained earnings of $20,000. Norris 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 3 years. The carrying amounts of Norris' assets and liabilities were equal to their fair value except for the following items: Carrying value Fair value Inventory $45,000 $35,000 Equipment 60.000 75,000 Bond payable 30,000 38.000 The equipment in Norris' books has an expected remaining useful life of 10 years and the bond payable matures December 31 Year 7. Due to economic changes the annual goodwill impaiment tests resulted in a $2,000 loss in Year 5 and $1,000 loss in Year 6. At December 31, Year 6, Norris owed Meyers $20,000 in an interest bearing note at 5% (note was issued in Year 5). During Year 8. Meyers paid $20,000 in dividends and Norris paid $10,000 in dividends. The balance sheets and income statements for both companies for the year ended Year 6 are as follows: Balance Sheets At December 31, Year 6 Meyers Ltd. Norris Company Assets Cash $ 50.000 $ 35,000 Accounts receivable 100.000 40,000 Notes receivable 80,000 Inventory 90.000 80.000 Land 60.000 50,000 Equipment 600.000 298,000 Accumulated depreciation 100,000 50.000 Investment in Norris (cost basis) 90.000 5.970.000 S_453.000 Liabilities & Shareholders' equity Accounts payable $ 70.000 $ 50,000 Notes payable 30.000 Bonds payable 200.000 270,000 Common shares 500.000 38.000 Retained eamings 200.000 65,000 $ 970,000 $ 453,000 Norris Company $ 500,000 Income Statements For the year ended December 31. Year 6 Meyers Ltd. Sales $ 798,000 Other income 10.000 Cost of goods sold 500,000 Depreciation/amortization expense 98,000 Administration expense 48.000 Other expenses 60.000 Income tax expense 26.000 Net income 78.000 270,000 50,000 30,000 90,000 20,000 40.000 Required: a. Prepare the calculation and allocation of the Acquisition Differential (Schedule 1) and the AD amortization impairment Schedule 2. b. Calculate the consolidated net income for Year 6. c. Calculate the consolidated retained earnings at January 1, Year 6. d. Prepare the three (3) consolidated financial statements for Meyers, December 31. Year 8. using the direct method (prepare in good format and write out all words completely - do not abbreviate) Hints: AD remaining (balance at) December 31, Year 6 = $42.000. Total Consolidated Assets = $1,357,000. Note: You have been given 2 separate lines for Equipment less accumulated depreciation on Consolidated Balance Sheet. You cannot net these two numbers. Show each as a separate line. On January 1 Year 4. Meyers Ltd. purchased 80% of the outstanding common shares of Norris Company for $90,000 in cash. On the date of the purchase. Norris had common shares of $38.000 and retained earnings of $20,000. Norris 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 3 years. The carrying amounts of Norris' assets and liabilities were equal to their fair value except for the following items: Carrying value Fair value Inventory $45,000 $35,000 Equipment 60.000 75,000 Bond payable 30,000 38.000 The equipment in Norris' books has an expected remaining useful life of 10 years and the bond payable matures December 31 Year 7. Due to economic changes the annual goodwill impaiment tests resulted in a $2,000 loss in Year 5 and $1,000 loss in Year 6. At December 31, Year 6, Norris owed Meyers $20,000 in an interest bearing note at 5% (note was issued in Year 5). During Year 8. Meyers paid $20,000 in dividends and Norris paid $10,000 in dividends. The balance sheets and income statements for both companies for the year ended Year 6 are as follows: Balance Sheets At December 31, Year 6 Meyers Ltd. Norris Company Assets Cash $ 50.000 $ 35,000 Accounts receivable 100.000 40,000 Notes receivable 80,000 Inventory 90.000 80.000 Land 60.000 50,000 Equipment 600.000 298,000 Accumulated depreciation 100,000 50.000 Investment in Norris (cost basis) 90.000 5.970.000 S_453.000 Liabilities & Shareholders' equity Accounts payable $ 70.000 $ 50,000 Notes payable 30.000 Bonds payable 200.000 270,000 Common shares 500.000 38.000 Retained eamings 200.000 65,000 $ 970,000 $ 453,000 Norris Company $ 500,000 Income Statements For the year ended December 31. Year 6 Meyers Ltd. Sales $ 798,000 Other income 10.000 Cost of goods sold 500,000 Depreciation/amortization expense 98,000 Administration expense 48.000 Other expenses 60.000 Income tax expense 26.000 Net income 78.000 270,000 50,000 30,000 90,000 20,000 40.000 Required: a. Prepare the calculation and allocation of the Acquisition Differential (Schedule 1) and the AD amortization impairment Schedule 2. b. Calculate the consolidated net income for Year 6. c. Calculate the consolidated retained earnings at January 1, Year 6. d. Prepare the three (3) consolidated financial statements for Meyers, December 31. Year 8. using the direct method (prepare in good format and write out all words completely - do not abbreviate) Hints: AD remaining (balance at) December 31, Year 6 = $42.000. Total Consolidated Assets = $1,357,000. Note: You have been given 2 separate lines for Equipment less accumulated depreciation on Consolidated Balance Sheet. You cannot net these two numbers. Show each as a separate line