A parent company paid $500,000 for a 100% interest in a subsidiary. At the end ofthe rst year, the subsidiary reported net income of $40,000 and paid $5,000 in divi-dends. The price paid reected understated equipment of $70,000, which will beamortized over 10 years. What would be the subsidiary income reported on the par-ents unconsolidated income statement, and what would the parents investmentbalance beat the end ofthe rst year under each ofthese methods?

a. The simple equity method

b. The sophisticated equity method

c. The cost method