PLEASE ANSWER QUESTION B

On January 2, Year 5, Windsor Ltd. acquired 70% of the outstanding voting shares of LaSalle Ltd. The acquisition differential of $200,000 on that date was allocated in the following manner:

Inventory	$	70,000
Land		20,000
Plant and equipment		30,000			Estimated life 5 years
Patent		40,000			Estimated life 8 years
Goodwill		40,000
	$	200,000

The Year 9 income statements for the two companies were as follows:

	Windsor				LaSalle
Sales	$	4,100,000			$	2,070,000
Intercompany investment income		201,600
Rental revenue						50,000
Total income		4,301,600				2,120,000
Materials used in manufacturing		2,050,000				770,000
Changes in work-in-progress and finished goods inventory		15,000				(50,000	)
Employee benefits		520,000				450,000
Interest expense		220,000				110,000
Depreciation		375,000				250,000
Patent amortization						30,000
Rental expense		25,000
Income tax		270,000				243,000
Total expenses		3,475,000				1,803,000
Profit	$	826,600			$	317,000

Additional Information

• LaSalle regularly sells raw materials to Windsor. Intercompany sales in Year 9 totalled $390,000.
• Intercompany profits in the inventories of Windsor were as follows:

January 1, Year 9	$115,000
December 31, Year 9	140,000

• Windsors entire rental expense relates to equipment rented from LaSalle.
• A goodwill impairment loss of $3,000 occurred in Year 9.
• Retained earnings at December 31, Year 9, for Windsor and LaSalle were $2,525,400 and $1,120,000, respectively.
• Windsor uses the equity method to account for its investment, and uses income tax allocation at the rate of 40% when it prepares consolidated statements.

Required:

(a)Prepare a consolidated income statement for Year 9 with expenses classified by nature.

(b)Calculate consolidated retained earnings at December 31, Year 9.

PLEASE ANSWER QUESTION B