Paper Corp. purchased 1,400 common shares of Sand Ltd. For a cash consideration of $232,400 on January 1, Year 5. Paper has always used the equity method to account for its investment. On January 1, Year 5, the balance sheet of Sand showed the following shareholders' equity:

$8 cumulative preferred shares, 500 shares issued                   $67,000

Common shares, 2,000 shares issued                                          180,000

Deficit (Note 1)                                                                                  (97,000)

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                                                                                                           $150,000

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Note 1: Dividends on preferred shares are two years in arrears.

The fair values of Sand's identifiable net assets differed from carrying amounts only with respect to the

followings:

	Carrying Amount	FV
A/R	$51,000	$47,000
Inventory	$61,000	$78,000
Plant	$580,000	$630,000
Long-term Liabilities	$332,000	$352,000

 

The plant had an estimated remaining useful life of five years on this date, and the long-term liabilities

had a maturity date of December 30, Year 12. Anny goodwill is to be tested annually for impairment.

 

The following are the financial statements of Paper Corp. and its subsidiary Sand Ltd. As at December

31, Year 5:

 

Balance Sheets

At December 31, Year 12

              Paper                   Sand

Cash $ 57,000               $ 2,700

AR        117,000              102,000

Inventory 84,360            65,000

Land      47,000               87,000

P&Equip 520,000          870,000

Accum Depn (197,000) (317,000)

Investment in Step 232,400.     -

               $ 860,760     $ 809,700

 

Accounts Payable $ 98,800 $ 197,000

Accrued Liabilities 9,700 13,400

Preferred shares -             67,000

Common shares 450,000 180,000

Retained Earnings 302,260 352,300

                  $ 860,760    $ 809,700

 

 

Retained Earnings Statement

For the year ended December 31, Year 12

                          Paper              Sand

Bal January 1st $ 297,260 $ 417,300

Net income (loss) 31,000   (28,000)

                           328,260 389,300

Dividends      26,000          37,000

Bal December 31st 302,260 352,300

 

Additional information

•  Both Paper and Sand make substantial sales to each other at an intercompany selling price that yields the same gross profit as the sales they make to unrelated customers. 
• Intercompany sales in Year 12 were: Paper to Sand $360,000 and Sand to Paper $381,000.
•  On January 1, Year 12, inventories of the two companies contained unrealized intercompany profits. Inventory of Paper $31,000 and Inventory of Sand $30,000.
•  On December 31, Year 12, inventories of the two companies contained unrealized intercompany profits. Inventory of Paper $42,000 and Inventory of Sand $44,000.
•  On July 1, Year 7, Sand sold equipment to Paper for $76,000. The equipment had a carrying amount in the records of Sand of $56,000 on this date and an estimated remaining useful life of five years.
•  Goodwill impairment losses were recorded for Year 12, $83,000.
•  Assume 40% corporate tax rate.
•  Paper has accounted for its investment in Sand by the cost method.
•  All dividends in arears were paid by December 31, Year 11.

 

a) Calculate the following amounts that would appear on December 31, Year 12 consolidated

balance sheet:

i) Goodwill 

ii) Deferred Income Tax for December 31, Year 12 

b) Consolidated net income of Year 12