Consolidated Workpaper, Partially Owned SubsidiarySubsequent Years

On January 1, 2017, Perez Company purchased 90% of the capital stock of Sanchez Company for $85,000. Sanchez Company had capital stock of $70,000 and retained earnings of $12,000 at that time. On December 31, 2021, the trial balances of the two companies were:

	Perez	Sanchez
Cash	$13,000	$14,000
Accounts receivable	22,000	36,000
Inventory, 1/1	14,000	8,000
Advance to Sanchez Company	8,000	0
Investment in Sanchez Company	85,000	0
Plant and equipment	50,000	44,000
Land	17,800	6,000
Dividends declared	10,000	12,000
Purchases	84,000	20,000
Other expense	10,000	16,000
Total debits	$313,800	$156,000
Accounts payable	$6,000	$6,000
Other liabilities	37,000	0
Advance from Perez Company	0	8,000
Capital stock	100,000	70,000
Retained earnings	50,000	30,000
Sales	110,000	42,000
Dividend income	10,800	0
Total credits	$313,800	$156,000
Inventory, 12/31	$40,000	$15,000

Any difference between book value and the value implied by the purchase price relates to goodwill.

Required:

1. What method is being used by Perez to account for its investment in Sanchez Company? How can you tell?
2. Prepare a workpaper for the preparation of consolidated financial statements on 12/31/21.