Can someone explain why doesn't you add subsidiary's net income? How come Parent's net income includes subsidiary's net income?

Question 21 (BCC-0036B) On January 1, year 2, Pane Corp. exchanged 150,000 shares of its $20 par value common stock for all of Sky Corp.'s common stock. At that date, the fair value of Pane's common stock issued was equal to the book value of Sky's net assets. Both corporations continued to operate as separate businesses, maintaining accounting records with years ending December 31. Pane uses the equity method to account for its investment in Sky. Information from separate company operations follows: Pane $3,200,000 Retained earnings12/31/Y1 Net income-six months ended 6/30/Y2 Dividends paid3/25/Y2 Sky $925,000 275,000 800,000 750,000 What amount of retained earnings would Pane report in its June 30, year 2 consolidated balance sheet? $5,200,000 $4,450,000 Your Answer $3,525,000 Correct $3,250,000 This Answer is Correct In combined financial statements, the statements include only the adjusted retained earnings of the parent. The subsidiary's retained earnings are not included. Since Pane uses the equity method to account for its investment in Sky, Pane's net income will include its share of the net earnings of Sky. Therefore, 6/30/Y2 consolidated retained earnings is equal to $3,250,000 ($3,200,000 + $800,000 - $750,000)