on december 31 year 1 the peach company purchased 80 of the outstanding voting share 3387286

On December 31, Year 1, the Peach Company purchased 80% of the outstanding voting shares of the Orange Company for $964,000 in cash. The balance sheet of Orange on that date and the fair values of its tangible assets and liabilities were as follows: The difference between the fair value and the carrying amount of cash and accounts receivable of the subsidiary at December 31, Year 1, was adjusted by Orange in Year 2. At the acquisition date, the plant and equipment had an estimated remaining useful life of 10 years with no residual value. The long-term liabilities mature on December 31, Year 6. Any goodwill arising from the business combination will be tested for impairment. Peach uses the cost method to account for its investment in Orange. Both Peach and Orange use the straight-line method to calculate all depreciation for depreciable assets and amortization of premiums or discounts on long-term liabilities. The statements of income and changes in retained earnings of the two companies for the year ending December 31, Year 5, were as follows: Additional Information • Goodwill impairment losses were recorded as follows: Year 2, $3,600; Year 4, $30,000; Year 5, $11,200. • On December 31, Year 4, Orange sold a warehouse to Peach for $54,000. It had been purchased on January 1, Year 3, for $100,000 and had an estimated 20-year life on that date with no salvage value. • During Year 4, Orange sold merchandise that it had purchased for $120,000 to Peach for $250,000


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