Feustel Company acquired 100% of Schmitt Companys common stock for $1,000,000 in cash on Jan. 1, 2017. At that date, Schmitts $750,000 of net assets (aka book value of equity) were fairly stated, except a building that was overvalued by $75,000 (estimated useful life of 15 years, straight-line) and a $100,000 undervalued piece of equipment (estimated useful life of 5 years, straight-line). Schmitt also had an unrecorded patent of 100,000 (useful life of 10 years, straight- line). Feustel Company accounts for its investment in Schmitt Company using the equity method. The following financial statements are reported at December 31, 2021:

Income Statement Feustel Schmitt Sales $4,160,000 $401,600 COGS (3,098,100) (232,700) Gross Profit 1,061,900 168,900 Income (loss) from subsidiary 54,000 Operating expenses. (732,200) (89,900) Net income $ 383,700 $ 79,000

Statement of Retained Earnings Feustel Schmitt BOY Retained Earnings $2,696,120 $395,500 Net income 383,700 79,000 Dividends (74,500) (9,500) EOY Retained Earnings $3,005,320 $465,000

Balance Sheet Feustel Schmitt Assets: Cash $ 211,620 $ 84,700 Accounts receivable 433,600 113,200 Inventory 641,900 142,100 Equity Investment 969,500 PPE, net 4,063,200 800,500 $6,319,820 $1,140,500

Liabilities and Stockholders Equity: Current Liabilities $ 620,500 $ 46,000 Long-term Liabilities 703,500 250,000 Common Stock 402,000 135,000 APIC 1,588,500 244,500 Retained Earnings 3,005,320 465,000 $6,319,820 $1,140,500

c. Prepare the entries required under the equity method on Feustel's pre-consolidation books for 2021. This means make the entries the parent company would make on its separate company books (like the Big only entries in our notes). d. Prepare the consolidation entries for 2021.