On January $1,$ Year $4,$ Par purchased $75\%$ of the common shares of Sub for $$4,200,000.$ On that

date, Sub had common shares of $$1,000,000$ and retained earnings of $$2,300,000.$ The fair values

were equal to carrying values for all its net assets except the following:

Inventory carrying value was greater than the fair value by $$120,000$; property, plant and

equipment carrying value was less than the fair value by $$800,000($remaining useful life of $8$

years$),$ and note payable carrying value was less than the fair value by $90,000(8$ years to

maturity$)$ on Sub$$s books.

The financial statements for Par and Sub for the year ended December $31,$ Year $8$ were as

follows:

Statements of Income

For the year ended December $31,$ Year $8$

Par Sub

Sales $ $5,000,000$ $ $4,400,000$

Cost of sales $3,200,0002,920,000$

Gross profit $1,800,0001,480,000$

Other income $410,000230,000$

Depreciation and amortization expense $700,000600,000$

Other expenses $740,000500,000$

Income tax expense $340,000220,000$

Net income $430,000390,000$

Statements of Retained Earnings

For the year ended December $31,$ Year $8$

Retained earnings, beginning $4,000,0003,300,000$

Net income $430,000390,000$

Dividends paid $(140,000)(100,000)$

Retained earnings, end $ $4,290,000$ $ $3,590,000$

Balance Sheets

December $31,$ Year $8$

Par Sub

Cash and Accounts receivable $ $1,400,000$ $ $1,100,000$

Note receivable $500,000450,000$

Inventory $2,400,0001,600,000$

$*$Property$,$ plant and equipment $5,390,0003,690,000$

Accumulated depreciation $2,500,0001,150,000$

Investment in Sub $4,200,000-----$

Total assets $ $11,390,000$ $ $5,690,000$

$*$Includes land

Current liabilities $ $1,300,000$ $ $600,000$

Notes payable $800,000500,000$

Common shares $5,000,0001,000,000$

Retained earnings $4,290,0003,590,000$

Total $ $11,390,000$ $ $5,690,000$

$453$ A$32021$W$2$

Additional information

$1.$ Each year, goodwill is evaluated to determine if there has been a permanent impairment.

Goodwill impairment was $$500,000$ in Year $6$ and the recoverable value of goodwill December

$31,$ Year $8$ was $$800,000.$

$2.$ During December Year $8,$ Par purchased merchandise from Sub for $$800,000.$ Of this

merchandise, $65\%$ was resold by Par by December $31,$ Year $8.$ In December $31,$ Year $7,$ the

inventories of Par contained $$410,000$ of merchandise purchased from Sub. Sub earns a gross

margin of $30\%$ on its sales to Par.

$3.$ On March $1,$ Year $6,$ Sub sold land to Par for $$700,000.$ Sub purchased the land on

January $1,$ Year $5$ for $$510,000.$ In Year $8,$ Par sold $60\%$ of this land to an outsider.

$4.$ During Year $8,$ Sub charged Par $$40,000$ for professional services of which $$10,000$ was

owing at December $31,$ Year $8$

$5.$ On July $1,$ Year $7,$ Sub sold a machine to Par for $$315,000.$ Sub had paid $$340,000$ for this

machine on July $1,$ Year $5$ and had been depreciating the machine on a straight$-$line basis over $8$

years.

$6.$ Par accounts for its investment in Sub using the cost method. Both companies pay income

taxes at the rate of $25\%.$

Required: Show all work and round to the nearest dollar

a$)$ Prepare all $3$ schedules $(8$ marks$)$

b$)$ Calculate Consolidated Net Income for Year $8(8$ marks$)$

c$)$ Calculate Consolidated Retained Earnings January $1,$ Year $8(6$ marks$)$

d$)$ Prepare the $3$ Consolidated financial statements for Year $8$ in good format $(41$ marks$)$

e$)$ Prepare the working paper journal entry$($s$)$ for the intercompany sale of inventory in Year

$8(3$ marks$)$

Hints: Goodwill $=$ $$1,710,000$; AD left Dec. $31,$ Year $8=$ $$1,066,250$; Consolidated NI $=$

$$368,500$; Total Consolidated assets $$13,816,250$

Note: there are $2$ separate lines for Equipment less accumulated depreciation on Cons B$/$S

hence do not show a net number.

Notes

$$ Only $4$ columns for AD amort.$/$loss schedule $($in proper sequence$)$

$$ Good format so include proper title with proper dates

$$ All calculations must be shown $($i$.$e$.$ for NCI, Cons. RE$,$ etc$)$

$$ All words on the consolidated FSs must be written out fully

$$ All #s must be given in brackets on Cons. Statements along with totals

$$ If using excel, answer the question in one sheet$/$tab only so markers can follow the

references