On January 4, 20X7, Pradeesh Corp. acquired 100% of the outstanding common shares of Serena Inc. by a share-for-share exchange of its own shares, valued at $1,000,000. The statements of financial position of both companies just prior to the share exchange are shown below. Serena had patents, not shown on the SFP, that had an estimated fair value of $200,000 and an estimated remaining productive life of four years. Serena€™s buildings and equipment had an estimated fair value $300,000 in excess of carrying value, and the deferred charges were assumed to have a fair value of zero. Serena€™s buildings and equipment are being depreciated on the straight-line basis and have a remaining useful life of 10 years. The deferred charges are being amortized over three years.

During 20X7, the year following the acquisition, Serena borrowed $100,000 from Pradeesh; $40,000 was repaid, and $60,000 is still outstanding at year-end. No interest is being charged on the loan. Through the year, Serena sold goods to Pradeesh totalling $400,000. Serena€™s gross margin is 40% of selling price. Three-quarters of these goods were resold by Pradeesh to its customers, for $450,000. Dividend declarations amounted to $80,000 by Pradeesh and $50,000 by Serena. There were no other intercompany transactions. The year-end 20X7 SFPs and SCIs for Pradeesh and Serena are shown below.

Required

a. How would the SCI and SFP for Pradeesh Corp. differ from those shown below if Pradeesh reported its investment in Serena on the equity basis? Show all calculations.

b. Prepare a complete set of consolidated financial statements for Pradeesh Corp. for 20X7. Show all calculations.

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Statements of Financial Position December 31, 20X6 Pradeesh Serena $ 110,000 $ 85,000 Cash Accounts and other receivables 140,000 80,000 Inventories 110,000 55,000 Buildings and equipment 1,500,000 800,000 Accumulated depreciation Deferred charges (700,000) (400,000) 120,000 $ 740,000 $ 100,000 $ 1,160,000 $ 200,000 Accounts and other payables Bonds payable 200,000 Deferred income taxes 60,000 40,000 Common shares* 600,000 150,000 Retained earnings 300,000 250,000 $ 1,160,000 $ 740,000 *Pradeesh = 300,000 shares, Serena = 150,000 shares. Statements of Financial Position December 31, 20X7 Pradeesh Serena $ 50,000 $ 25,000 Cash Accounts and other receivables 240,000 90,000 Inventories 150,000 80,000 Buildings and equipment Accumulated depreciation 1,300,000 900,000 (570,000) (445,000) Land 60,000 Investment in Serena (at cost) 1,000,000 Other investments Deferred charges 70,000 30,000 80,000 Accounts and other payables $ 2,240,000 $ 150,000 $ 820,000 $ 180,000 Bonds payable 170,000 Deferred income taxes Common shares 70,000 45,000 1,600,000 150,000 Retained earnings 420,000 275,000 $ 2,240,000 $ 820,000 Statements of Comprehensive Income Year Ended December 31, 20X7 Pradeesh Serena Sales $ 1,500,000 $ 900,000 Dividend income 50,000 1,550,000 900,000 Cost of sales 1,000,000 540,000 Depreciation expense 70,000 45,000 Amortization expense 40,000 Income tax expense 50,000 25,000 Other expenses 230,000 175,000 1,350,000 825,000 Net income and comprehensive income $ 200,000 $ 75,000 Statements of Changes in Equity-Retained Earnings Section Year Ended December 31, 20X7 Pradeesh Serena Retained earnings, December 31, 20X6 $ 300,000 $ 250,000 Net income 200,000 75,000 Dividends declared (80,000) (50,000) $ 275,000 Retained earnings, December 31, 20X7 $ 420,000