On January 1, 20X5, Piper Ltd. purchased 100% of the shares of Sutton Ltd. for $ 1,085,000. At that time Sutton Ltd. had the following SFP:

The bonds were issued at par and will mature in 10 years. Sutton Ltd. has a receivables and inventory turnover of greater than six times per year. The capital assets have an average of 10 years of remaining life and are being amortized straight- line.

In 20X5, Sutton Ltd. sold inventory to Piper Ltd. for $ 260,000; the inventory had cost $ 320,000. At the end of 20X5, 25% was still in Piper’s inventory but was all sold in 20X6.

In 20X6, Piper Ltd. sold inventory to Sutton Ltd. for $ 275,000; the inventory had cost $ 200,000. At the end of 20X6, 35% was left in Sutton’s inventory.

During 20X5, the subsidiary earned $ 875,000 and paid dividends of $ 50,000. During 20X6, the subsidiary incurred a loss of $ 180,000 and paid dividends of $ 60,000.

Piper uses the cost method for the investment in subsidiary and nets almost everything to “Other expenses.”

At December 31, 20X6, the following financial statements were available:

Required

a. Prepare a consolidated statement of comprehensive income for 20X6.

b. Calculate the amounts that would appear on the consolidated SFP at December 31, 20X6, for:

1. Capital assets, net

2. Bonds payable

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Sutton Ltd Statement of Financial Position January 1, 20x5 Accounts receivable Inventory FIFO Capital assets, net 2 1,350,000 Current liabilities Bonds payable Common shares Retained eamings 6 Statement of Financial Position December 31, 20X6 Accounts receivable Capital assets, net Investment in Sutton Ltd. Current liabilities Common shares Retained eamings Statement of Comprehensive Income Year Ended December 31, 20X6 Cost of sales Gross profit Depreciation Other expenses Gain on sale of building Net income 1