Statements of Income and Retained Earnings For the year ended December 31 , Year 8 PAD SBC Sales $ 3,800,000 $ 2,710,000 Cost of sales 1 600 000 1 140 000 Gross prot 2,200,000 1,570,000 Other income 240,000 40,000 Depreciation and amortization expense (480,000) (310,000) Other expenses (400,000) (180,000) Income tax expense g 100 ,000) (70,000) Net income 1,460,000 1,050,000 Retained earnings, beginning 4,200,000 2,580,000 Dividends paid (100,000) 170,000) Retained earnings, end M s 3;6__Q,0 )1; Additional information 1. Each year, goodwill is evaluated to determine if there has been a permanent impairment. Goodwill impairment was $220,000 in Year 6 and $60,000 in Year 8. 2. On July 2, Year 6, PAD sold a machine to SBC for $215,000. PAD had paid $250,000 for this machine on July 2, Year 1 and had been depreciating the machine on a straight-line basis over 10 years. There was no change in the estimated useful life of this machine or in the residual value of $20,000. 3. During December Year 8, PAD purchased merchandise from SBC for $510,000, of which PAD still owes SBC $180,000 at year-end. Of this merchandise, 35% was resold by PAD by December 31, Year 8. In December 31, Year 7, the inventories of PAD contained $120,000 of merchandise purchased from SBC. SBC earns a gross margin of 25% on its sales to PAD. 4. On January 1, Year 7, PAD lent SBC $10,000 due in 3 years and charges interest of 3%. 5. PAD accounts for its investment in SBC using the cost method. 6. Both companies pay income taxes at the rate of 40%. Required: show all schedules and work for full marks a) Prepare all 3 schedules b) Calculate Consolidated Net Income for Year 8 c) Calculate Consolidated Retained Earnings January 1, Year 8 (1) Prepare the Consolidated nancial statements for Year 8 in good format e) Prepare the working paper journal entry(s) for the intercompany sale of inventory in Year 8 Hints: Goodwill = $1,320,000; Total AD remaining Dec 31, Year 8 = $1,111,000; Consolidated N1 = $2,360,875; total consolidated assets = $15,809,275