Paper Corp. purchased 70% of the outstanding shares of Sand Ltd. on January 1, Year 2, at a cost of $87,220. Paper has always used the equity method to account for its investments. On January 1, Year 2, Sand had common shares of $50,000 and retained earnings of $29,000, and fair values were equal to carrying amounts for all its net assets, except inventory (fair value was $5,000 less than carrying amount) and equipment (fair value was $16,500 greater than carrying amount). The equipment, which is used for research, had an estimated remaining life of six years on January 1, Year 2. The following are the financial statements of Paper Corp. and its subsidiary Sand Ltd. as at December 31, Year 5: BALANCE SHEETS At December 31, Year 5 Paper Cash $ Sand $ 21,000 Accounts receivable 43,000 32,000 Note receivable 32,400 Inventory 82,800 49,500 Equipment (net) 285,000 81,500 Land 188,000 41,000 Investment in Sand 133,497 $732,297 $257,400 Bank indebtedness $164,485 $ Accounts payable 72,000 59,900 Notes payable 32,400 Common shares 150,000 50,000 Retained earnings 313,412 147,500 $732,297 $257,400 INCOME STATEMENTS For the year ended December 31, Year 5 Paper Sand $ 842,000 $ 347,700 Sales Management fee revenue Equity method income from Sand 24,000 689 Interest income 3,240 Gain on sale of land 12,400 866,689 363,340 Cost of sales 505,200 231,800 Research and development expenses 45,500 16,400 Interest expense 18,800 Miscellaneous expenses 117,000 31,600 Income taxes 72,440 33,416 Equity method income from Sand Sales INCOME STATEMENTS For the year ended December 31, Year 5 Management fee revenue Interest income Paper $ 842,000 24,000 Sand $ 347,700 689 Gain on sale of land 3,240 12,400 866,689 363,340 Cost of sales 505,200 231,800 Research and development expenses 45,500 16,400 Interest expense 18,800 Miscellaneous expenses 117,000 31,600 Income taxes 72,440 33,416 758,940 Net income $ 107,749 $ 313,216 50,124 Check my work Additional Information During Year 5, Sand made a cash payment of $2,000 per month to Paper for management fees, which is included in Sand's Miscellaneous expenses. During Year 5, Paper made intercompany sales of $105,000 to Sand. The December 31, Year 5, inventory of Sand contained goods purchased from Paper amounting to $31,500. These sales had a gross profit of 35%. On April 1, Year 5, Paper acquired land from Sand for $32,400. This land had been recorded on Sand's books at a carrying amount of $20,000. Paper paid for the land by signing a $32,400 note payable to Sand, bearing yearly interest at 10%. Interest for Year 5 was paid by Paper in cash on December 31, Year 5. This land was still being held by Paper on December 31, Year 5. The value of consolidated goodwill remained unchanged from January 1, Year 2, to July Year 5. On July 1, Year 5, a valuation was performed, indicating that the recoverable amount of consolidated goodwill was $4,600. During the year ended December 31, Year 5, Paper paid dividends of $80,000 and Sand paid dividends of $20,000. Sand and Paper pay taxes at a 40% rate. Assume that none of the gains or losses were capital gains or losses. Required: (a) Prepare, in good form, a calculation of goodwill and any undepleted acquisition differential as of December 31, Year 5. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "O" wherever required. Omit $ sign in your response.) Inventory Equipment Goodwill Balance January 1, Year 2 $ Changes to Year 2-4 $ Year 5 Balance Dec. 31, Year 5 $ $ (b) Prepare Paper's consolidated income statement for the year ended December 31, Year 5, with expenses classified by function. (Round your answer to nearest whole dollar.) PAPER CORP. Consolidated Income Statement For the Year Ended December 31, Year 5 Total revenue Total expenses Attributable to: Shareholders of Paper (c) Calculate the following balances that would appear on Paper's consolidated balance sheet as at December 31, Year 5: (Leave no cells blank - be certain to enter "0" wherever required. Omit $ sign in your response.) (i) Inventory Inventory (ii) Land Land $ EA (iii) Notes payable Notes payable (iv) Non-controlling interest Non-controlling interest (v) Common shares Common shares SA $ (d) Assume that an independent business valuator valued the non-controlling interest at $35,425 at the date of acquisition. Calculate goodwill impairment loss and profit attributable to non-controlling interest for the year ended December 31, Year 5. (Omit $ sign in your response.) Goodwill impairment loss Profit attributable to non-controlling interest $