Paper Corp. purchased 70% of the outstanding shares of Sand Ltd. on January 1, Year 2, at a cost of $99,750. 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 $33,800, and fair values were equal to carrying amounts for all its net assets, except inventory (fair value was $6,200 less than carrying amount) and equipment (fair value was $18,900 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 $ Accounts receivable 49,000 Note receivable Inventory 93,600 Equipment (net) 337,000 Land 206,000 Investment in Sand 142,667 $828,267 Bank indebtedness $210,095 Accounts payable 84,000 Notes payable 39,400 Common shares 150,000 Retained earnings 344,772 $828,267 Sand $ 27,000 36,200 39,400 52,500 84,500 47,000 $286,600 $ 74,100 50,000 162,500 $286,600 Sand $ 455,700 INCOME STATEMENTS For the year ended December 31, Year 5 Paper Sales $ 866,000 Management fee revenue 31,200 Equity method income from Sand 1,991 Interest income Gain on sale of land 899,191 Cost of sales 519,600 Research and development expenses 48,500 Interest expense 23,600 Miscellaneous expenses 123,000 Income taxes 73,760 788,460 Net income $ 110,731 3,940 13,400 473,040 303,800 18,800 38,800 44,656 406,056 66,984 $ . Additional Information During Year 5, Sand made a cash payment of $2,600 per month to Paper for management fees, which is included in Sand's Miscellaneous expenses. During Year 5, Paper made intercompany sales of $135,000 to Sand. The December 31, Year 5, inventory of Sand contained goods purchased from Paper amounting to $40,500. These sales had a gross profit of 35%. On April 1, Year 5, Paper acquired land from Sand for $39,400. This land had been recorded on Sand's books at a carrying amount of $26,000. Paper paid for the land by signing a $39,400 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 $5,200. 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. O 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 "0" wherever required. Omit $ sign in your response.) Balance January 1, Year 2 $ Changes to Year 2-4 $ $ Year 5 Balance Dec. 31, Year 5 $ Inventory Equipment Goodwill $ $ $ (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 Non-controlling interest (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 $ (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 $40,975 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 Paper Corp. purchased 70% of the outstanding shares of Sand Ltd. on January 1, Year 2, at a cost of $99,750. 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 $33,800, and fair values were equal to carrying amounts for all its net assets, except inventory (fair value was $6,200 less than carrying amount) and equipment (fair value was $18,900 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 $ Accounts receivable 49,000 Note receivable Inventory 93,600 Equipment (net) 337,000 Land 206,000 Investment in Sand 142,667 $828,267 Bank indebtedness $210,095 Accounts payable 84,000 Notes payable 39,400 Common shares 150,000 Retained earnings 344,772 $828,267 Sand $ 27,000 36,200 39,400 52,500 84,500 47,000 $286,600 $ 74,100 50,000 162,500 $286,600 Sand $ 455,700 INCOME STATEMENTS For the year ended December 31, Year 5 Paper Sales $ 866,000 Management fee revenue 31,200 Equity method income from Sand 1,991 Interest income Gain on sale of land 899,191 Cost of sales 519,600 Research and development expenses 48,500 Interest expense 23,600 Miscellaneous expenses 123,000 Income taxes 73,760 788,460 Net income $ 110,731 3,940 13,400 473,040 303,800 18,800 38,800 44,656 406,056 66,984 $ . Additional Information During Year 5, Sand made a cash payment of $2,600 per month to Paper for management fees, which is included in Sand's Miscellaneous expenses. During Year 5, Paper made intercompany sales of $135,000 to Sand. The December 31, Year 5, inventory of Sand contained goods purchased from Paper amounting to $40,500. These sales had a gross profit of 35%. On April 1, Year 5, Paper acquired land from Sand for $39,400. This land had been recorded on Sand's books at a carrying amount of $26,000. Paper paid for the land by signing a $39,400 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 $5,200. 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. O 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 "0" wherever required. Omit $ sign in your response.) Balance January 1, Year 2 $ Changes to Year 2-4 $ $ Year 5 Balance Dec. 31, Year 5 $ Inventory Equipment Goodwill $ $ $ (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 Non-controlling interest (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 $ (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 $40,975 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