Inferring consolidation entries from consolidated financial statements-Cost method Assume a parent company acquired a subsidiary on january 1,2018, The purchase price was $880,000 in excess of the subsidiary's book value of Stockholders' Equity on the acquisition date, and that excess was assigned to the following [A] assets: The parent company uses the cost method of pre-consolidation Equity Investment bookkeeping. The Goodwill asset has been tested annually for impairmentand has not been found to be impaired. Selected accounts from the parent, subsidiary, and consolidated financial statements for the year ended December 31,2022 , are as follows: a. For the year ended December 31,2022 , explain how the parent's pre-consolidation investment income of $80,000 was determined. Inder the cost method, investment income equals the dividends received from the subsidiary. Inder the cost method, investment income equals equity income minus dividends received from the subsidiary. Inder the cost method, investment income equals equity income plus dividends received from the subsidiary. Under the cost method, investment income equals equity income plus dividends received from the subsidiary. b. Explain how the parent's December 31, 2022 pre-consolidation Equity Imvestment balance of \$1,408,000 was determined. Inder the cost method, it is the original purchase price plus dividends received by the subsidiary since acquisition. Inder the cost method, it is the original purchase price for the subsidiary. Inder the cost method, it is the original purchase price plus equity income and minus dividends received by the subsidhry since acquisition. c. For the year ended December 31,2022 , reconcile the parent companys pre-cohsolidation net income of $1,360,000 to the consolidated balance of $1,448,000; Do not use eegative signs with your answers. d. What was the subsidiary's retained earnings balance on the acquisition date? You should assume the Common Stock and APIC have not changed since the acquisition date. (Hint: You will need to use an account that does not change after the acquisition date.) 1 e. Why arent the Stockholders Equity accounts of the subsidiary reflected in the consolidated balance shee? the subsidiarys stockholders equity is not held by a party outside of the economic entity represented in the consolidated financial statements and, as a result, should not be included in the consolidated stockholders' equity. The subsidiary's stockholders equity is held by a party outside of the economic entity represented in the consolidated financial statements and, as a result, should not be included in the consolidated stockholders' equity. The subsidiary's stockholders' equity is held by a party outside of the economic entity represented in the consolidated financial statements and, as a result, is reflected in the Equity investment account on the consolidated balance sheet rather than be included in the consolidated stockholders' equity. Tesult snould not beineluded in the consondated stocknotders equity: The subsidiary's stockholders' equity is held by a party outside of the economic entity represented in the consolidated financial statements and, as a result, should not be included in the consolidated stockholders equity. The subsidiary's stockholders' equity is held by a party outside of the economic entity represented in the consolidated financial statements and, as a result, is reflected in the Equity Investment account on the consolidated balance sheet rather than be included in the consolidated stockholders equity