Assume that, on January 1, 2019, P Company acquired a 70% interest in its subsidiary, S Company. The aggregate fair value of the controlling and noncontrolling interest was $400,000 in excess of S Companys Stockholders Equity on the acquisition date. The parent uses the equity method to account for its investment in S company. The parent assigned the acquisition accounting premium (AAP) as follows:

AAP Item	Initial Fair Value	Useful Life (years)
PPE, net	$220,000	10
Customer List	120,000	10
Goodwill	60,000	Indefinite
	$400,000

P Company and S Company report the following financial statements at December 31, 2023:

Income Statement
	Parent	Subsidiary
Sales	$6,500,000	$600,000
Cost of goods sold	-4,250,000	-350,000
Gross Profit	2,250,000	250,000
Income (loss) from subsidiary	74,000
Operating expenses	-1,250,000	-142,000
Net income	$1,074,000	$108,000

Statement of Retained Earnings
	Parent	Subsidiary
BOY Retained Earnings	$7,900,000	$958,000
Net income	1,074,000	108,000
Dividends	-102,540	-18,750
EOY Retained Earnings	$8,871,460	$1,047,250

Balance Sheet
	Parent	Subsidiary
Assets:
Cash	$500,000	$250,000
Accounts receivable	2,045,000	425,000
Inventory	657,000	624,500
Equity Investment	1,331,475
PPE, net	9,507,985	511,750
	$14,041,460	$1,811,250
Liabilities and Stockholders Equity:
Current Liabilities	$900,000	$370,000
Long-term Liabilities	1,570,000	0
Common Stock	600,000	42,000
APIC	2,100,000	352,000
Retained Earnings	8,871,460	1,047,250
	$14,041,460	$1,811,250

15. Based on the given financial statements, the computation of the pre-consolidation income (loss) from subsidiary of $74,000 reported by the parent includes a deduction for:

a. $25,000 for excess attributable to depreciation and amortization

b. $34,000 for excess attributable to depreciation and amortization

c. $13,125 for 70% of dividends declared and paid by S Company

d. $75,600 for 70% of the net income of subsidiary

16. The December 31, 2023 pre-consolidation balance of the equity investment accounting equals $1,331,475 (i.e., 5 years subsequent to the acquisition).

On this date, the equity investment balance implicitly includes:

a. Dividends, $121,290

b. Goodwill, $60,000

c. Goodwill, $48,000

d. Unamortized AAP excluding Goodwill, $204,000