C3. On January 1, 2020, Wondersome Company acquired a 70% interest in Philmore Company for a purchase price that was $240,000 over the book value of the Philmore's Stockholders' Equity on the acquisition date. Wondersome uses the cost method to account for its investment in Philmore. On the date of acquisition, Philmore's retained earnings balance was $350,000. Wondersome assigned the acquisition-date AAP as follows: AAP Items Initial Fair Value Useful Life (years) PPE, net 90,000 20 Patent 150,000 10 $350,000 Philmore sells inventory to Wondersome (upstream) which includes that inventory in products that it, ultimately, sells to customers outside of the controlled group. You have compiled the following data for the years ending 2022 and 2023: 2022 2023 Transfer price for inventory sale $94,500 $70,000 Cost of goods sold -64,500 -45,000 Gross profit $30,000 $25,000 % inventory remaining 30% 20% Gross profit deferred $9,000 $5,000 EOY Receivable/Payable $32,000 $29,500 The inventory not remaining at the end of the year has been sold outside of the controlled group. The parent and the subsidiary report the following financial statements at December 31, 2023: Income Statement Wondersome Philmore Sales $2,400,000 $602,400 Cost of goods sold -1.580,000 -465,398 Gross Profit 820,000 137,002 Income (loss) from subsidiary 10,500 Operating expenses -711,200 -56,000 Net income $119,300 $81,002 Statement of Retained Earnings Wondersome Philmore BOY Retained Earnings $3,360,350 $608,000 Net income 119,300 81,002 Dividends -85,000 -15,000 EOY Retained Earnings $3,394,650 $674,002 Continued @Cambridge Business Publishers, 2012 Test Bank, Chapter 3 3-13