The statements of financial position of Prime Inc. and Variable Ltd. on December 31,
Year 11, were as follows:

Variable's manufacturing facility is old and very costly to operate. For the year ended December 31, Year 11, the company lost money for the first time in its history. Variable does not have the financial ability to refurbish the plant. It musteither cease operations or find a partner to carry on operations.
On January 1, Year 12, Prime agreed to provide an interest-free loan of $200,000 to Variable on the following terms and conditions:
€¢ Prime Inc. would be hired by Variable to refurbish the manufacturing facility at a fixed cost of $200,000 and would be retained to manage the business.
€¢ Prime Inc. would have full authority to make all major operating, investing, and financing decisions related to Variable.
€¢ The ordinary shares of Variable were valued at $208,000 as at January 1, Year 12.
Prime has the option to buy the shares of Variable at any time after January 1, Year 17, at $208,000 plus any dividends in arrears.
€¢ The existing shareholders of Variable would be guaranteed a cumulative dividend of 8% a year on the value of their shares. Prime would receive the residual profits after the dividends were paid to the ordinary shareholders.
Variable earned income of $200,000 and paid dividends of $50,000 over the five-year period ended December 31, Year 16. The statements of financial Variable earned income of $200,000 and paid dividends of $50,000 over the five-year period ended December 31, Year 16. The statements of financial position of Prime Inc. and Variable Ltd. on December 31, Year 16 were as follows:

Assume that Variable is a variable interest entity and Prime is the primary beneficiary. The manufacturing facility had an estimated remaining useful life of 10 years as at January 1, Year 12. The long-term debt matures on December 31, Year 21. Prior to Year 12, Prime had no business relations with Variable.
Required:
(a) Calculate consolidated retained earnings at December 31, Year 16.
(b) Prepare a consolidated statement of financial position for Prime at December 31, Year 16.
(c) Use the definition of a liability to explain the rationale for including the liabilities of the variable interest entity on the consolidated statement of financial position for the primary beneficiary.

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Prime Variable Ltd Fair value $200,000 300,000 Carrying amount Land Manufacturing facility Accumulated depreciation Accounts receivable Cash Carrying amount 80,000 520,000 (200,000) 50,000 $ 400,000 1,050,000 (300,000) 250,000 200,000 $1,600,000 50,000 $450,000 S550,000 $50,000 Ordinary shares Retained earnings Long-term debt Current liabilities S 10,000 90,000 290,000 60,000 $450,000 750,000 525,000 275,000 $1,600,000 $280,000 60,000 Prime Variable $400,000 650,000 275,000 20,000 $1,345,000 80,000 260,000 70,000 180,000 $590,000 Land Manufacturing facility Accounts receivable Cash Ordinary shares Retained earnings Long-term debt Current liabilities $ 50,000 660,000 450,000 185,000 $1,345,000 10,000 240,000 290,000 50,000 $590,000