Question $2(25$ marks$)$

On January $1,2014,$ Prince Corporation acquired $70\%$ of the $100,000$ outstanding voting shares of

Song Limited for a cash consideration of $$1,015,000.$ On that date, shares of Song Limited were

trading for $$14\mathrm{.}00$ per share on the national stock exchange. The shareholders' equity of Song

Limited on the acquisition date consisted of common shares with a carrying value of $$710,000,$

contributed surplus of $$110,000$ and retained earnings of $$320,000.$ All the assets and liabilities of

Song were fairly valued on its balance sheet except that capital assets were undervalued by

$$120,000$ and long$-$term debt with a book value of $$210,000$ had a fair value of $$160,000.$ The capital

assets had a remaining useful life of six years and the long$-$term debt matured on December $31$

Prince Corporation accounts for its investment in Song Limited using the cost method and values

the non$-$controlling interest in Song Limited at its fair value as determined from the market value of

its shares on the acquisition date. The Financial statements of the two companies for the year ended

December $31,2016$ appear on the next page.

Additional information:

Goodwill impairment tests are carried out annually. During $2014,$ goodwill impairment was

determined to be $$26,000$ on the parent's share of goodwill and $$5,000$ on the NCI share. In

$2016,$ impairment in the amounts of $$35,000$ and $$6,000$ respectively was found to have

occurred.

Song Company declared its $2016$ dividends on December $15,2016,$ with payment to be made on

January $15,2017.$

During $2016,$ Prince charged rental fees of $$30,000$ to Song. Prince estimated that its cost to

provide the rental services to Song was $$20,000$ for the year. At December $31,2016,$ Song owed

Prince $$7,500$ for the last quarter's rental services.

Ignore income taxes on the allocation and amortization of the acquisition differential.

Required:

Prepare the consolidated financial statements of Prince Corporation and its subsidiary for the year

ended December $31,2016$