The financial statements of Parent Corporation and its subsidiary, Sub Company, as of December 31, Year 6, are presented below. STATEMENTS OF FINANCIAL POSITION December 31, Year 6 Parent Sub Land $ 170,000 $ 23,000 Plant and equipment 505,000 66,000 Accumulated depreciation (222,000 ) (21,000 ) Investment in Sub 129,833 Inventory 32,000 31,000 Notes receivable 56,000 Accounts receivable 16,700 7,200 Cash 12,000 10,200 $ 643,533 $ 172,400 Ordinary shares $ 100,000 $ 50,000 Retained earnings 265,500 81,000 Notes payable 56,000 Accounts payable 222,033 41,400 $ 643,533 $ 172,400 STATEMENTS OF PROFITYear 6 Parent Sub Sales $ 850,000 $ 246,000 Management fee revenue 28,000 Interest revenue 6,200 Equity method income from Sub 2,755 Gain on sale of land 36,000 880,755 288,200 Cost of goods sold 490,000 182,000 Interest expense 21,500 Other expenses 195,000 61,000 Income tax expense 95,000 16,000 (801,500 ) (259,000 ) Profit $ 79,255 $ 29,200 Additional Information Parent purchased 70% of the outstanding shares of Sub on January 1, Year 4, at a cost of $91,000. On that date, Sub had accumulated depreciation of $14,000, retained earnings of $19,000, and fair values were equal to carrying amounts for all its net assets, except inventory (overvalued by $16,000). In determining the purchase price, the management of Parent noted that Sub, as lessee, leases a warehouse that has terms that are unfavourable relative to market terms. However, the lease agreement explicitly prohibits transfer of the lease (through either sale or sublease). An independent appraiser indicated that the fair value of this unfavourable lease agreement is $22,000. There were five years remaining on this lease on the date of acquisition. The companies sell merchandise to each other at a gross profit rate of 25%. The December 31, Year 5, inventory of Parent contained purchases made from Sub amounting to $18,000. There were no intercompany purchases in the inventory of Sub on this date. During Year 6 the following intercompany transactions took place: Sub made a payment of $28,000 to Parent for management fees, which was recorded under the category other expenses. Sub made sales of $72,000 to Parent. The December 31, Year 6, inventory of Parent contained goods purchased from Sub amounting to $31,000. Parent made sales of $131,000 to Sub. The December 31, Year 6, inventory of Sub contained goods purchased from Parent amounting to $22,000. On July 1, Year 6, Parent borrowed $56,000 from Sub and signed a note bearing interest at 12% per annum. The interest on this note was paid on December 31, Year 6. During the year, Sub sold land to Parent and recorded a gain of $36,000 on the transaction. This land is being held by Parent on December 31, Year 6. Goodwill impairment losses occurred as follows: Year 4, $2,800; Year 5, $560; Year 6, $1,400. Neither Parent nor Page paid any dividends during the year. Parent uses the equity method to account for its investment in Sub. Both companies pay income tax at 40% on their taxable incomes. Required: (a) Prepare the following consolidated financial statements for Year 6: (i) Income statement (ii) Statement of financial position (b) Include the following calculations for Year 6: (i) Acquisition Differential and Goodwill amounts (ii) Changes to Acquisition Differential from Year 4 to Year 6 (iii) Inter-company revenues and expenses (iv) Inter-company profits (including before and after-tax amounts) (v) Deferred Tax amounts (vi) Consolidated income calculation (include attributable to Parent and NCI amounts) (vii) NCI amount for SFP