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On January 1, 20X2, Popp Ltd. purchased 70 percent of the outstanding voting shares of Snack Co. for $700,000. On that date, Snack's balance sheet and the fair values of its identifiable assets and liabilities were as follows: Cash Accounts receivable Inventories Plant and equipment Accumulated depreciation/amortization Book Value $80,000 160,000 320,000 400,000 (80.000) 880.000 Fair Value $80,000 136,000 320,000 480,000 80,000 256,000 Current liabilities Long-term liabilities Common shares Retained earnings 80,000 240,000 480,000 80,000 $880.000 Popp uses the cost method to account for its investment in Snack. Both Popp and Snack use the straight-line method to calculate amortization on their depreciable assets and long-term liabilities. At the acquisition date, the plant and equipment had an estimated remaining useful life of eight years with no residual value. The long-term liabilities mature on December 31, 20x11. The difference between the fair value and the carrying value of Snack's accounts receivable at acquisition was adjusted by Snack in 20x2. The statements of income and changes in retained earnings of the two companies for the year ending December 31, 20x5, were as follows: Sale of merchandise Other revenues Total revenues Cost of sales Amortization expense Interest expense Other expenses (including income tax) Total expenses Net income Retained earnings, 1/1/20X5 Dividends Retained earnings, 31/12/20X5 Popp $6,400,000 240,000 6.640,000 2,800,000 480,000 240,000 1.200,000 4.720.000 1,920,000 3,200,000 (200,000) $4.920.000 Snack $800,000 32,000 832.000 320,000 56,000 24,000 160,000 560,000 272,000 320,000 32,000) $560.000 Additional information: During 20X4, Snack sold merchandise that it had purchased for $80,000 to Popp for $120,000. None of this merchandise had been resold by Popp by December 31, 20X4. Popp had sales of $160,000 to Snack during 20X4, which produced a gross profit of $60,000. All of this inventory was resold by Snack during 20X4 for $188,000. During November 20X5, Snack sold merchandise that had been purchased for $160,000 to Popp for $240,000. All of this merchandise remained in the December 31, 20X5, inventories of Popp. During September 20X5, Popp had sales of $192,000 to Snack, which increased Popp's gross profit by $96,000. By December 31, 20x5, one-half of this merchandise had been sold to the public by Snack. On January 1, 20X5, Popp sold equipment to Snack for $29,000. Popp had originally acquired this equipment for $32,000. On January 1, 20X5, it had been amortized for six years of its estimated 10-year life. During 20X5, Popp charged Snack $40,000 for management fees. Goodwill impairment tests resulted in losses and were recorded as follows: o 20X3: $4,000 0 20X4: $25,000 0 20X5: $8,000 Assume a 30 percent corporate tax rate. Required: a. Prepare a consolidated statement of income for the year ending December 31, 20X5. On January 1, 20X2, Popp Ltd. purchased 70 percent of the outstanding voting shares of Snack Co. for $700,000. On that date, Snack's balance sheet and the fair values of its identifiable assets and liabilities were as follows: Cash Accounts receivable Inventories Plant and equipment Accumulated depreciation/amortization Book Value $80,000 160,000 320,000 400,000 (80.000) 880.000 Fair Value $80,000 136,000 320,000 480,000 80,000 256,000 Current liabilities Long-term liabilities Common shares Retained earnings 80,000 240,000 480,000 80,000 $880.000 Popp uses the cost method to account for its investment in Snack. Both Popp and Snack use the straight-line method to calculate amortization on their depreciable assets and long-term liabilities. At the acquisition date, the plant and equipment had an estimated remaining useful life of eight years with no residual value. The long-term liabilities mature on December 31, 20x11. The difference between the fair value and the carrying value of Snack's accounts receivable at acquisition was adjusted by Snack in 20x2. The statements of income and changes in retained earnings of the two companies for the year ending December 31, 20x5, were as follows: Sale of merchandise Other revenues Total revenues Cost of sales Amortization expense Interest expense Other expenses (including income tax) Total expenses Net income Retained earnings, 1/1/20X5 Dividends Retained earnings, 31/12/20X5 Popp $6,400,000 240,000 6.640,000 2,800,000 480,000 240,000 1.200,000 4.720.000 1,920,000 3,200,000 (200,000) $4.920.000 Snack $800,000 32,000 832.000 320,000 56,000 24,000 160,000 560,000 272,000 320,000 32,000) $560.000 Additional information: During 20X4, Snack sold merchandise that it had purchased for $80,000 to Popp for $120,000. None of this merchandise had been resold by Popp by December 31, 20X4. Popp had sales of $160,000 to Snack during 20X4, which produced a gross profit of $60,000. All of this inventory was resold by Snack during 20X4 for $188,000. During November 20X5, Snack sold merchandise that had been purchased for $160,000 to Popp for $240,000. All of this merchandise remained in the December 31, 20X5, inventories of Popp. During September 20X5, Popp had sales of $192,000 to Snack, which increased Popp's gross profit by $96,000. By December 31, 20x5, one-half of this merchandise had been sold to the public by Snack. On January 1, 20X5, Popp sold equipment to Snack for $29,000. Popp had originally acquired this equipment for $32,000. On January 1, 20X5, it had been amortized for six years of its estimated 10-year life. During 20X5, Popp charged Snack $40,000 for management fees. Goodwill impairment tests resulted in losses and were recorded as follows: o 20X3: $4,000 0 20X4: $25,000 0 20X5: $8,000 Assume a 30 percent corporate tax rate. Required: a. Prepare a consolidated statement of income for the year ending December 31, 20X5