1. prepare the necessary eliminations for the preparation of consolidated financial statements on December 31, 2016.

On January 1, 2012 Company P acquired 75% of the common stock of Company s for $2,380,500. On January 1, 2012 the owners' equity of Company s consisted of common stock of $1,800,000, paid-in capital of $700,000, and retained earnings of $500,000. Inventory was undervalued on the books of Company S in the amount of $15,000. Plant and equipment with a 8 year remaining useful life was undervalued on the books of Company S in the amount of $64,000. Land was undervalued on the books of Company S in the amount of $25,000 The income statement for 2016, the retained earnings statement for 2016, and the balance sheet on December 31, 2016 for each company are presented below Sales Subsidiary Income Interest Income Company P $1,300, 000 86,500 Company s 600,000 15,700 $1,386,500 $ 615,700 Expenses: Cost of Goods Sold $ 700,000 Operating Depreciation Interest $ 305, 000 100,700 90,000 203,000 85,000 495, 700 62,000 1,050 000 s-3361500 Net Income $ 845,000 336, 500 $1,181, 500 75,000 $1,106,500 $ 830,000 120,000 $ 950,000 50,000 S 900,000 Retained Earnings January 1 Net Income Dividends Declared Retained Earnings December 31 Cash Accounts Receivables Inventory Investment in Bonds Investment in S Company Plant and Equipment (net) Land $ 164, 650 150,000 300,000 $49,100 60,000 140,000 200,900 2,635,350 2,500,000 250,000 2,900,000 150,000 $3,500,000 $ 187,500 800,000 6,000 3,400,000 500,000 1,106, 500 $ 100,000 Accounts Payable Bonds Payable Premium on Bonds Payable Common Stock Paid-in Capital Retained Earnings 1,800,000 700,000 900,000 On January 1, 2012 Company P acquired 75% of the common stock of Company s for $2,380,500. On January 1, 2012 the owners' equity of Company s consisted of common stock of $1,800,000, paid-in capital of $700,000, and retained earnings of $500,000. Inventory was undervalued on the books of Company S in the amount of $15,000. Plant and equipment with a 8 year remaining useful life was undervalued on the books of Company S in the amount of $64,000. Land was undervalued on the books of Company S in the amount of $25,000 The income statement for 2016, the retained earnings statement for 2016, and the balance sheet on December 31, 2016 for each company are presented below Sales Subsidiary Income Interest Income Company P $1,300, 000 86,500 Company s 600,000 15,700 $1,386,500 $ 615,700 Expenses: Cost of Goods Sold $ 700,000 Operating Depreciation Interest $ 305, 000 100,700 90,000 203,000 85,000 495, 700 62,000 1,050 000 s-3361500 Net Income $ 845,000 336, 500 $1,181, 500 75,000 $1,106,500 $ 830,000 120,000 $ 950,000 50,000 S 900,000 Retained Earnings January 1 Net Income Dividends Declared Retained Earnings December 31 Cash Accounts Receivables Inventory Investment in Bonds Investment in S Company Plant and Equipment (net) Land $ 164, 650 150,000 300,000 $49,100 60,000 140,000 200,900 2,635,350 2,500,000 250,000 2,900,000 150,000 $3,500,000 $ 187,500 800,000 6,000 3,400,000 500,000 1,106, 500 $ 100,000 Accounts Payable Bonds Payable Premium on Bonds Payable Common Stock Paid-in Capital Retained Earnings 1,800,000 700,000 900,000