On January 1, Year 7, the Large Company purchased 56,000 of the 80,000 ordinary shares of the Small Company for $75 per share. On that date, Small had ordinary shares of $3,200,000, and retained earnings of $1,800,000. When acquired, Small had inventories with fair values $50,000 less than carrying amount, a parcel of land with a fair value $200,000 greater than the carrying amount, All other identifiable assets and liabilities of Small had fair values equal to their carrying amounts. Smalls accumulated depreciation on the plant and equipment was $440,000 at the date of acquisition.

The year 11 financial statements for Large and Small were as follows:

Additional Information

• At the acquisition date, the equipment had an expected remaining useful life of 5 years. Both companies use the straight-line method for all depreciation and amortization calculations and the FIFO inventory cost flow assumption. Assume a 30% income tax rate on all applicable items. Impairment of goodwill in Year 8 amounted to $25,000 and in year 11, amounted to $30,000. Method for adjusting depreciation at acquisition is the net method.
• On August 1, Year 11, Small sold a parcel of land to Large and recorded a total non-operating gain of $300,000.
• Sales of finished goods from Large to Small totalled $1,070,000 in Year 10 and $2,070,000 in Year 11. These sales were priced to provide a gross profit margin on selling price of 25 % to the Large Company. Smalls December 31, Year 10, inventory contained $321,000 of these sales; December 31, Year 11, inventory contained $621,000 of these sales.
• On January 1, Year 8, Small purchased and sold copier equipment to Large at a gain of $100,000
• Sales of finished goods from Small to Large were $870,000 in Year 10 and $1,270,000 in Year 11. These sales were priced to provide a gross profit margin on selling price of 30% to the Small Company. Larges December 31, Year 10, inventory contained $170,000 of these sales; the December 31, Year 11, inventory contained $570,000 of these sales.
• The amount still owing by Small on inventory purchases is $120,000.
• Larges investment in Smalls account is carried in accordance with the cost method and includes advances to Small of $250,000, which are also included in current liabilities.
• There are no intercompany amounts other than those noted, except for the dividends of $480,000 (total amount) declared and paid by Small.

Required: Calculate the Consolidated Retained Earnings as at Dec 31, Year11.

INCOME STATEMENTS for year ending December 31, Year 11 Large Sales $12,000,000 Dividends, investment income and gains 1,680,000 Total income 13,680,000 Cost of goods sold 9,000,000 Other expenses 600,000 Income taxes 200,000 Total expenses 9,800,000 Profit $ 3,880,000 Small $4,500,000 2,400,000 6,900,000 2,800,000 600,000 200,000 3,600,000 $3,300,000 STATEMENTS OF FINANCIAL POSITION December 31, Year 11 Large Land $ 6,200,000 Plant and equipment 23,200,000 Accumulated depreciation (4,400,000) Investment in Small, cost 4,450,000 Inventories 6,200,000 Cash and current receivables 2,370,000 Total assets $38,020,000 Ordinary shares $10,000,000 Retained earnings 10,800,000 Long term Liability 8,200,000 Deferred income taxes 1,600,000 Current liabilities 7,420,000 Total equity and liabilities $38,020,000 Small $ 2,800,000 14,200,000 (3,600,000) 0 3,400,000 1,480,000 $18, 280,000 $ 3,200,000 5,600,000 2,400,000 100,000 6,980,000 $18, 280,000 Calculation of Ending Retained Earnings End Y11 Parent's R/E Dec 31, Y11 Add: Downstream loss on sale of land Y11 0 0 Adjusted Parent's R/E Sub's RIE Dec 31, Y11 Less: Sub's R/E at acquisition Sub's R/E increase since acquisition Less: Upstream sale of land Y11 - gain Less: Unrealized upstream profit Less: Gain from upstream sale of equipment Add: Cumulative Incremental Depr upstream - gain Less: Cumulative changes to AD table Adjusted Sub's R/E Parent's Ownership Share Consolidated Retained Earnings Dec 31, Y11 $ $ 0 % $ 0 INCOME STATEMENTS for year ending December 31, Year 11 Large Sales $12,000,000 Dividends, investment income and gains 1,680,000 Total income 13,680,000 Cost of goods sold 9,000,000 Other expenses 600,000 Income taxes 200,000 Total expenses 9,800,000 Profit $ 3,880,000 Small $4,500,000 2,400,000 6,900,000 2,800,000 600,000 200,000 3,600,000 $3,300,000 STATEMENTS OF FINANCIAL POSITION December 31, Year 11 Large Land $ 6,200,000 Plant and equipment 23,200,000 Accumulated depreciation (4,400,000) Investment in Small, cost 4,450,000 Inventories 6,200,000 Cash and current receivables 2,370,000 Total assets $38,020,000 Ordinary shares $10,000,000 Retained earnings 10,800,000 Long term Liability 8,200,000 Deferred income taxes 1,600,000 Current liabilities 7,420,000 Total equity and liabilities $38,020,000 Small $ 2,800,000 14,200,000 (3,600,000) 0 3,400,000 1,480,000 $18, 280,000 $ 3,200,000 5,600,000 2,400,000 100,000 6,980,000 $18, 280,000 Calculation of Ending Retained Earnings End Y11 Parent's R/E Dec 31, Y11 Add: Downstream loss on sale of land Y11 0 0 Adjusted Parent's R/E Sub's RIE Dec 31, Y11 Less: Sub's R/E at acquisition Sub's R/E increase since acquisition Less: Upstream sale of land Y11 - gain Less: Unrealized upstream profit Less: Gain from upstream sale of equipment Add: Cumulative Incremental Depr upstream - gain Less: Cumulative changes to AD table Adjusted Sub's R/E Parent's Ownership Share Consolidated Retained Earnings Dec 31, Y11 $ $ 0 % $ 0