At the date of acquisition, a

subsidiary's inventory $($LIFO$,$ still held

by the subsidiary$)$ is overvalued by

$$600,$ its plant assets $(10-$year life,

straight$-$line$)$ are overvalued by

$$4,000,$ and it has previously

unreported intangibles valued at

$$1,000(2-$year life, straight$-$line$).$

Goodwill from the acquisition is not

impaired. In the third year following

acquisition, the subsidiary reports net

income of $$2,500.$ Using the complete

equity method, in the third year the

parent reports equity in the net income

of the subsidiary of:

$$3,500$

$$2,100$

$$2,400$

$$2,900$