Paper Corp. purchased 70% of the outstanding shares of Sand Ltd. on January 1, Year 2, at a cost of $84,000. 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 $30,000, and fair values were equal to carrying amounts for all its net assets, except inventory (fair value was $9,000 less than carrying amount) and equipment (fair value was $24,000 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 $ 10,000 Accounts receivable 36,000 25,000 Note receivable 45,000 Inventory 66,000 44,000 Equipment, net 220,000 76,000 Land 155,000 30,000 Investment in Sand 110,250 $587,250 $230,000 Bank indebtedness $ 90,000 $ Accounts payable 50,000 60,000 Notes payable 45,000 Common shares 150,000 50,000 Retained earnings 252,250 120,000 $587,250 $230,000 INCOME STATEMENTS For the year ended December 31, Year 5 Paper Sand Sales $798,000 $300,000 Management fee revenue 24,000 Equity method income from Sand 1,050 Interest income 3,600 Gain on sale of land 25,000 823,050 328,600 Cost of sales 480,000 200,000 Research and development 40,000 12,000 expenses Interest expense 10,000 Miscellaneous expenses 106,000 31,600 Income taxes 80,000 34,000 716.000 277,600 Net income $107,050 $ 51,000