On January 2, Year 1, Brady Ltd. purchased 80% of the outstanding shares of Partridge Ltd. for $4,120,000. Partridge's statement of financial position and the fair values of its identifiable assets and liabilities for that date appear later in this section. The patents had a remaining useful life of 10 years on the acquisition date. The bonds were issued on January 1, Year 1, and mature on December 31, Year 10. Goodwill impairment losses were recorded as follows:
€¢ Year 1: $25,000
€¢ Year 3: $12,500
Partridge declared and paid dividends of $100,000 in Year 3.

On December 31, Year 3, the financial statements of the two companies were as follows:

Required:
(a) Prepare consolidated financial statements on December 31, Year 3.
(b) Assume that Brady is a private entity, uses ASPE, and chooses to use the cost method to account for its investment in Partridge. Which items on Brady's separate-entity financial statements would have amounts different from those shown? Compute the equity method balances of these items.
(c) Calculate the current ratio, debt-to-equity ratio, and return on total shareholders' equity for Brady's Year 3 financial statements assuming that the
- Equity method was used to report its investment in Partridge;
- Cost method was used to report its investment in Partridge; and
- Consolidated statements were used to the business combination with Partridge.
Round percentages to one decimal point and other ratios to two decimal points.
(d) Briefly explain which of the different reporting methods in (c) report the highest
- Liquidity.
- Risk of insolvency.
- Profitability.

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Carrying amount $4,500,000 1,000,000 2,000,000 1,500,000 500,000 $9,500,000 $2,000,000 2,500,000 3,000,000 2,000,000 $9,500,000 Plant and equipment (net) Patents (net) Inventory Accounts receivable Cash Fair value $4,500,000 1,500,000 2,200,000 1,500,000 500,000 Ordinary shares Retained earnings 10% bonds payable Accounts payable 3,300,000 2,000,000 STATEMENT OF FINANCIAL POSITION Partridge $5,000,000 700,000 Brady $8,000,000 Plant and equipment (net) Patents (net) Investment in Partridge Ltd. (equity method) Inventory Accounts receivable Cash 4,362,000 4,600,000 1,000,000 400,000 $18,362,000 1,900,000 1,300,000 600,000 $9,500,000 Ordinary shares Retained earnings Bonds payable Accounts payable $5,000,000 6,362,000 4,000,000 3,000,000 $18,362,000 $2,000,000 3,100,000 3,000,000 1,400,000 $9,500,000 INCOME STATEMENTS $10,000,000 134,000 10,134,000 6,930,000 70,000 900,000 $5,000,000 Sales Investment revenue from Partridge Cost of goods purchased Change in inventory Depreciation expense Patent amortization expense Interest expense Other expenses Income taxes 5,000,000 2,890,000 110,000 400,000 100,000 300,000 850,000 150,000 4,800,000 200,000 480,000 680,000 600,000 9,660,000 $ 474,000 Profit