In 20X1, Pepper Company bought 75% of S Company's common shares, establishing control over the Board of Directors. Pepper Company used the cost method to account for its investment in S Co. during the year, but prepared consolidated financial statements at the end of the fiscal year, which are shown in summary form:

Required:
1. Why does the parent company use the cost method during the year?
2. Identify the accounts on the consolidated statements that do not appear on either of the unconsolidated statements. Explain the meaning of each new account.
3. Identify the accounts or amounts that appear on the unconsolidated financial statements that do not carry over to the consolidated amounts. Explain why they have been eliminated.
4. What is the most likely reason that the unconsolidated accounts receivables and current liabilities do not add to the balance shown in the consolidated financial statements?

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Pepper Co. S Co Consolidated Statement of Financial Position Cash Accounts receivable Inventory Capital assets Investment in S Co. Intangible assets $11,000 12,000 23,000 37,000 22,400 154,000 22,000 14,200 83,000 74,000 19,000 9,200 64,300 4,967 200 $104.500 $241 367 Current liabilities Long-term liabilities Non-controlling interest Common shares Retained earnings 30,000 $ 9,000 35,000 6,500 25,942 100,000 73.925 241,367 4,000 2,500 60,000 33,000 $204.200$104,500 100,000 70.200 Statement of Earnings and Comprehensive Income Sales and other revenue Cost of sales Operating expenses Net earnings Non-controlling interest in earnings Comprehensive income 96,000 63,00 $146,750 120,500 7.533 80,500 2,500 49,000 4.900 $13,000 9,100 18,717 1.992 $13,000 $9,100 16,725