The following financial statements were prepared on December $31,$ Year $6.$

BALANCE SHEET

Pearl Silver

Cash $ $550,000$ $ $350,000$

Accounts receivable $450,000$

Inventory $3,250,000670,000$

Plant and equipment $4,250,0005,190,000$

Accumulated depreciation $(1,000,000)(560,000)$

Investment in Silver Company $($at cost$)4,900,000$

$ $12,400,000$ $ $5,650,000$

Liabilities $ $465,000$ $ $975,000$

Common shares $5,350,0002,850,000$

Retained earnings $6,585,0001,825,000$

$ $12,400,000$ $ $5,650,000$

INCOME STATEMENT

Sales $ $5,250,000$ $ $2,250,000$

Dividend income $360,000$

$5,610,0002,250,000$

Cost of sales $2,750,000650,000$

Miscellaneous expenses $445,00095,000$

Administrative expense $105,00035,000$

Income tax expense $375,000245,000$

$(3,675,000)(1,025,000)$

Net income $ $1,935,000$ $ $1,225,000$

RETAINED EARNINGS STATEMENT

Balance, January $1$ $ $5,400,000$ $ $1,050,000$

Net income $1,935,0001,225,000$

$7,335,0002,275,000$

Dividends $(750,000)(450,000)$

Balance, December $31$ $ $6,585,000$ $ $1,825,000$

Additional Information

Pearl purchased $80\%$ of the outstanding voting shares of Silver for $$4,900,000$ on July $1,$ Year $2,$ at which time Silver$$s retained earnings were $$525,000,$ and accumulated depreciation was $$85,000.$ The acquisition differential on this date was allocated as follows:

$20\%$ to undervalued inventory

$30\%$ to equipment$$remaining useful life $8$ years

Balance to goodwill

During Year $3,$ a goodwill impairment loss of $$95,000$ was recognized, and an impairment test conducted as at December $31,$ Year $6,$ indicated that a further loss of $$45,000$ had occurred.

Amortization expense is grouped with cost of goods sold and impairment losses are grouped with administrative expenses.

Silver owes Pearl $$100,000$ on December $31,$ Year $6.$

Required:

$($a$)$ Prepare consolidated financial statements on December $31,$ Year $6.$

Answer rating: 100% (QA)

Answer To prepare consolidated financial statements on December 31 Year 6 we need to consolidate the ... View the full answer