$453$ Assignment $2$: Total marks $66$

On January $1,$ Year $4,$ Par purchased $75\%$ of the common shares of Sub for $$4,200,000.$ On that

date, Sub had common shares of $$900,000$ and retained earnings of $$2,400,000.$ The fair values

were equal to carrying values for all its net assets except the following:

Inventory carrying value was greater than the fair value by $$120,000$; property, plant and

equipment carrying value was less than the fair value by $$800,000($remaining useful life of $8$

years$),$ and note payable carrying value was less than the fair value by $90,000(8$ years to

maturity$)$ on Sub's books

The financial statements for Par and Sub for the year ended December $31,$ Year $8$ were as

follows:

Statements of Income

Statements of Retained Earnings

For the year ended December $31,$ Year $8$

Balance Sheets

Current assets

Note receivable

Inventory

$*$Property$,$ plant and equipment

Accumulated depreciation

Investment in Sub

Total assets

Includes land

Current liabilities

Notes payable

Common shares

Retained earnings

Total

Additional information

Each year, goodwill is evaluated to determine if there has been a permanent impairment.

Goodwill impairment was $$500,000$ in Year $6$ and the recoverable value of goodwill December

$31,$ Year $8$ was $$800,000$

During December Year $8,$ Par purchased merchandise from Sub for $$800,000.$ Of this

merchandise, $65\%$ was resold by Par by December $31,$ Year $8.$ In December $31,$ Year $7,$ the

inventories of Par contained $$410,000$ of merchandise purchased from Sub. Sub earns a gross

margin of $30\%$ on its sales to Par.

On March $1,$ Year $6,$ Sub sold land to Par for $$700,000.$ Sub purchased the land on

January $1,$ Year $5$ for $$510,000.$ In Year $8,$ Par sold $60\%$ of this land to an outsider.

During Year $8,$ Sub charged Par $$35,000$ for professional services of which $$15,000$ was

owing at December $31,$ Year $8$

On July $1,$ Year $7,$ Sub sold a machine to Par for $$315,000.$ Sub had paid $$340,000$ for this

machine on July $1,$ Year $5$ and had been depreciating the machine on a straight$-$line basis over $8$

years.

Par accounts for its investment in Sub using the cost method. Both companies pay income

taxes at the rate of $25\%.$

Required: Show all work and round to the nearest dollar

a$)$ Prepare all $3$ schedules $(8$ marks$)$

b$)$ Calculate Consolidated Net Income for Year $8(8$ marks$)$

c$)$ Calculate Consolidated Retained Earnings January $1,$ Year $8(6$ marks$)$

d$)$ Prepare the $3$ Consolidated financial statements for Year $8$ in good format $(41$ marks$)$

e$)$ Prepare the working paper journal entry$($s$)$ for the intercompany sale of inventory in Year

$8(3$ marks$)$

Hints: Goodwill $=$$$1,710,000$; AD left Dec. $31,$ Year $8=$$$1,066,250$; Consolidated $NI=$

$$368,500$; Total Consolidated assets $$13,811,250$

Note: there are $2$ separate lines for Equipment less accumulated depreciation on Cons B$/$S

hence do not show a net number.

Notes

Only $4$ columns for AD amort.$/$loss schedule $($in proper sequence$)$

Good format so include proper title with proper dates

All calculations must be shown $($i$.$e$.$ for NCI, Cons. RE$,$ etc$)$

All words on the consolidated FSs must be written out fully

All #s must be given in brackets or in cells on Cons. Statements along with totals

In excel, answer the question in one sheet$/$tab only so markers can follow the

references. Additional tabs will not be marked.