Consolidated Financial Statements Parent Company owns parts of three different subsidiaries. The balance sheets and income statements for these four companies are listed below. Note that, in the financial statements of Parent Company, its ownership interest in the three subsidiaries has been accounted for using the equity method.

Required:
1. Prepare a consolidated balance sheet for Parent Company and its subsidiaries.
2. Prepare a consolidated income statement for Parent Company and its subsidiaries.
3. Interpretive Question: Return on sales is net income divided by total sales. Without doing any computations, state what would happen to consolidated return on sales if Sub 3 were consolidated rather than accounted for using the equity method. Explain.

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Parent Percentage of the Parent's Ownership 90% Sub 1 60% Sub 2 40% Sub 3 Assets Cash Accounts receivable $ 120 500 $ 40 120 $ 30 $ 60 90 50 Plant and equipment Investment in Sub 1 1,050 400 160 300 288 Investment in Sub 2 78 Investment in Sub 3 84 Total assets $2,120 $ 560 $ 280 $ 410 Liabilities $ 900. $ 240 Equity 1,220 320 $ 150 130 Total liabilities and stockholders' equity $2,120 $ 560 $ 280 Sales $6,420 $3,000 $3,000 $ 200 210 $ 410 $8,000 Income from Sub 1 360 Income from Sub 2 480 Income from Sub 3 160 Expenses (4,200) (2,600) Net income $3,220 $ 400 (2,200) $ 800 (7,600) $ 400