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O$$Sullivan Corp. purchased $75\%$ of the outstanding shares of Rabb Ltd$.$ on January $1,$ Year $3,$ at a cost of $$214,200.$ Non$-$controlling interest was valued at $$75,000$ by an independent business valuator at the date of acquisition. On that date, Rabb had common shares of $$70,000$ and retained earnings of $$50,000.$ Fair values were equal to carrying amounts for all the net assets except the following:

Carrying Amount Fair Value

Inventory $ $50,000$ $ $29,000$

Equipment $49,00079,000$

Software $25,000$

The equipment had an estimated remaining useful life of six years on January $1,$ Year $3,$ and the software was to be amortized over ten years. Foxx uses the cost method to account for its investment. The testing for impairment at December $31,$ Year $6,$ yielded the following fair values:

Software $ $12,000$

Goodwill $127,258$

The impairment loss on these assets occurred entirely in Year $6.$ Amortization expense is grouped with administrative expenses, and impairment losses are grouped with miscellaneous expenses. The parent$$s share of the goodwill noted above is $$92,902.$

The following are the financial statements of O$$Sullivan Corp. and its subsidiary Rabb Ltd$.$ for Year $6$:

BALANCE SHEETS

At December $31,$ Year $6$

O$$Sullivan Corp. Rabb Ltd$.$

Cash $ $ $12,000$

Accounts receivable $60,00050,000$

Note receivable $60,000$

Inventory $86,00064,000$

Equipment, net $320,00096,000$

Land $250,00050,000$

Investment in Rabb $214,200$

$ $930,200$ $ $332,000$

Bank indebtedness $ $190,000$ $

Accounts payable $90,00080,000$

Notes payable $60,000$

Common shares $170,00070,000$

Retained earnings $420,200182,000$

$ $930,200$ $ $332,000$

STATEMENTS OF RETAINED EARNINGS

Year ended December $31,$ Year $6$

O$$Sullivan Corp. Rabb Ltd$.$

Retained earnings, January $1,$ Year $6$ $ $253,000$ $ $192,000$

Net income $231,25057,000$

Dividends $(64,050)(67,000)$

Retained earnings, December $31,$ Year $6$ $ $420,200$ $ $182,000$

INCOME STATEMENTS

For the year ended December $31,$ Year $6$

O$$Sullivan Corp. Rabb Ltd$.$

Sales $ $841,000$ $ $380,000$

Investment income $50,25022,600$

$891,250402,600$

Cost of sales $500,000220,000$

Administrative expenses $50,00022,000$

Miscellaneous expenses $70,00051,600$

Income taxes $40,00052,000$

$660,000345,600$

Net income $ $231,250$ $ $57,000$

Additional Information

The notes payable are intercompany.

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