use $50,000 as the ending value of goodwill on the consolidated balance sheet for year 6 (the fair value less disposal costs based on recent offer from a prospective purchaser); assume dividends declared are also paid)

On December 31, Year 2, Palm Inc. purchased 80% of the outstanding ordinary shares of Storm Company for $350,000. At that date, Storm had ordinary shares of $240,000 and retained earnings of $64,000. In negotiating the purchase price, it was agreed that the assets on Storm?s statement of financial position were fairly valued except for plant assets, which had a $44,000 excess of fair value over carrying amount. It was also agreed that Storm had unrecognized intangible assets consisting of trademarks that had an estimated value of $36,000. The plant assets had a remaining useful life of eight years at the acquisition date and the trademarks would be amortized over a 12-year period. Any goodwill arising from this business combination would be tested periodically for impairment. Palm accounts for its investment using the cost method.

Financial statements for Palm and Storm for the year ended December 31, Year 6, were as follows:

Additional Information

• At December 31, Year 6, an impairment test of Storm?s goodwill revealed the following:

  Fair value less disposal costs based on recent offer from prospective purchaser	$50,000
  Value in use based on undiscounted future net cash flows	69,000
  Value in use based on discounted future net cash flows using a discount rate of:
  8%, which is Storm?s incremental borrowing rate	42,000
  2%, which is the risk-free rate on government bonds	47,000

• An impairment test indicated that the trademarks had a recoverable amount of $14,350. The impairment loss on these assets occurred entirely in Year 6.
• On December 26, Year 6, Palm declared dividends of $40,000, while Storm declared dividends of $24,000.
• Amortization expense is reported in selling expenses, while impairment losses are reported in other expenses.

Required

(a)	Prepare consolidated financial statements.

Additional Information

At December 31, Year 6, an impairment test of Storm?s goodwill revealed the following:

Fair value less disposal costs based on recent offer from prospective purchaser	$50,000
Value in use based on undiscounted future net cash flows	69,000
Value in use based on discounted future net cash flows using a discount rate of:
8%, which is Storm?s incremental borrowing rate	42,000
2%, which is the risk-free rate on government bonds	47,000

An impairment test indicated that the trademarks had a recoverable amount of $14,350. The impairment loss on these assets occurred entirely in Year 6.

On December 26, Year 6, Palm declared dividends of $40,000, while Storm declared dividends of $24,000.

Amortization expense is reported in selling expenses, while impairment losses are reported in other expenses.

Required

(a)	Prepare consolidated financial statements.

STATEMENTS OF FINANCIAL POSITION
December 31, Year 6
Palm	Storm
Assets
Plant assets?net	$270,000	$200,000
Investment in Storm	350,000	?
Other investments	86,000	26,000
Notes receivable	?	14,000
Inventory	140,000	220,000
Accounts receivable	92,000	180,000
Cash	24,000	34,000
$962,000	$674,000
Shareholders? Equity and Liabilities
Ordinary shares	$540,000	$240,000
Retained earnings	150,000	190,000
Notes payable	150,000	120,000
Other current liabilities	14,000	54,000
Accounts payable	108,000	70,000
$962,000	$674,000
INCOME STATEMENTS
For the year ended December 31, Year 6
Palm	Storm
Sales	$910,000	$555,000
Cost of goods sold	(658,000)	(380,000)
Gross profit	252,000	175,000
Selling expenses	(26,000)	(39,000)
Other expenses	(156,000)	(80,000)
Interest and dividend income	38,000	6,000
Profit	$108,000	$62,000

: use $50,000 as the ending value of goodwill on the consolidated balance sheet for year 6 (the fair value less disposal costs based on recent offer from a prospective purchaser); assume dividends declared are also paid) On December 31, Year 2, Palm Inc. purchased 80% of the outstanding ordinary shares of Storm Company for $350,000. At that date, Storm had ordinary shares of $240,000 and retained earnings of $64,000. In negotiating the purchase price, it was agreed that the assets on Storm's statement of financial position were fairly valued except for plant assets, which had a $44,000 excess of fair value over carrying amount. It was also agreed that Storm had unrecognized intangible assets consisting of trademarks that had an estimated value of $36,000. The plant assets had a remaining useful life of eight years at the acquisition date and the trademarks would be amortized over a 12year period. Any goodwill arising from this business combination would be tested periodically for impairment. Palm accounts for its investment using the cost method. Financial statements for Palm and Storm for the year ended December 31, Year 6, were as follows: STATEMENTS OF FINANCIAL POSITION December 31, Year 6 Palm Storm Assets Plant assetsnet Investment in Storm $270,000 $200,000 350,000 86,000 26,000 14,000 140,000 220,000 Accounts receivable 92,000 180,000 Cash 24,000 34,000 Other investments Notes receivable Inventory $962,000 $674,000 Shareholders' Equity and Liabilities Ordinary shares $540,000 $240,000 Retained earnings 150,000 190,000 Notes payable 150,000 120,000 14,000 54,000 108,000 70,000 Other current liabilities Accounts payable $962,000 $674,000 INCOME STATEMENTS For the year ended December 31, Year 6 Palm Storm Sales $910,000 $555,000 Cost of goods sold (658,000) (380,000) Gross profit 252,000 175,000 Selling expenses (26,000) (39,000) Other expenses (156,000) (80,000) 38,000 6,000 Interest and dividend income Profit $108,000 $62,000 Additional Information At December 31, Year 6, an impairment test of Storm's goodwill revealed the following: Fair value less disposal costs based on recent offer from $50,000 prospective purchaser Value in use based on undiscounted future net cash flows 69,000 Value in use based on discounted future net cash flows using a discount rate of: 8%, which is Storm's incremental borrowing rate 42,000 2%, which is the risk-free rate on government bonds 47,000 An impairment test indicated that the trademarks had a recoverable amount of $14,350. The impairment loss on these assets occurred entirely in Year 6. On December 26, Year 6, Palm declared dividends of $40,000, while Storm declared dividends of $24,000. Amortization expense is reported in selling expenses, while impairment losses are reported in other expenses. Required (a) Prepare consolidated financial statements