Paper Corp. purchased 70% of the outstanding shares of Sand Ltd. on January 1, Year 2, at a cost of $92,855. 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 $31,250, and fair values were equal to carrying amounts for all its net assets, except Inventory (fair value was $5,600 less than carrying amount) and equipment (fair value was $18,000 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 Sand Cash $ $ 24,000 Accounts receivable 46,000 34,100 Note receivable 33,900 Inventory 88,200 51,000 Equipment (net) 310,000 83,000 Land 197,000 44,000 Investment in Sand 138,992 $780,192 $270,000 Bank indebtedness $188,205 Accounts payable 78,000 65,000 Notes payable 33,900 Common shares 150,000 50,000 Retained earnings 330,087 155,000 $780,192 $270,000 INCOME STATEMENTS For the year ended December 31, Year 5 Paper Sand Sales Management fee revenue $ 854,000 27,600 $ 401,700 Equity method income from Sand Interest income 1,956 3,390 Gain on sale of land 10,900 883,556 415,990 Cost of sales 512,400 267,800 Research and development expenses 47,000 17,600 Interest expense 21,200 Miscellaneous expenses 120,000 35,200 Income taxes 73,100 38,156 773,700 358,756 Net income $ 109,856 $ 57,234 Additional Information During Year 5, Sand made a cash payment of $2,300 per month to Paper for management fees, which is Included in Sand's Miscellaneous expenses. During Year 5, Paper made Intercompany sales of $120,000 to Sand. The December 31, Year 5, Inventory of Sand contained goods purchased from Paper amounting to $36,000. These sales had a gross profit of 35%. On April 1, Year 5, Paper acquired land from Sand for $33,900. This land had been recorded on Sand's books at a carrying amount of $23,000. Paper paid for the land by signing a $33,900 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 $4,900. 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.) Balance January 1, Year 2 Changes to Balance Inventory Equipment Goodwill $ Year 2-4 $ Year 5 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: 0 0 Shareholders of Paper Non-controlling interest $ 0 (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.) (1) Inventory Inventory (11) Land Land (III) Notes payable Notes payable (iv) Non-controlling interest Non-controlling Interest (v) Common shares Common shares $ (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.) (1) Inventory Inventory (11) Land Land (III) Notes payable Notes payable (iv) Non-controlling interest Non-controlling Interest (v) Common shares Common shares (d) Assume that an Independent business valuator valued the non-controlling Interest at $38,200 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 14 14 $