On 1 January 2020, Parent Ltd acquired (on an ex-dividend basis) all the outstanding shares of Subsidiary Ltd whose shareholders are to receive one share in Parent Ltd for every four shares held, plus $31,944 cash payable in three years' time. Parent also paid $50,000 consulting and brokerage fees. Shares of Parent were trading at $40 per share on 1 Jan, but due to doubts as to whether the share price would remain at or above this level, Parent agreed to supply cash to the value of any decrease in the share price below $40. This guarantee was valid until Dec 31, 2020. Parent believed that there was a 50% chance that the share price would fall to $36.

On the acquisition day, all identifiable assets and liabilities of Subsidiary Ltd were recorded at fair values except for the following:

Fair value ($) Book value ($) Status Inventories 30,000 10,000 Sold 40% during 2020 Buildings 35,000 48,000 A further 5-year life Accumulated depreciation (8.000) Net amount 40,000 Land 70,000 90,000 Sold at $76,000 during 2020Parent Subsidiary Income Statement for the Year Ended Dec 31, 2020 Sales..... $300,000 $80,000 Dividend revenue.... 3,800 550 Loss on sale of land........... 14,000 Loss on sale of machinery... 40,000 Gain on sale of equipment. 2,000 60,000 Cost of sales. ... 148,000 60,000 Depreciation expense................ 5,000 2,000 Selling & administrative expenses.. 7,800 1,550 Tax expense..... 12,000 8,000 Net income ... 93,000 55,000 Retained earnings, January 1, 2020.. 80,000 10,000 Dividend 2,000 1,500 Retained earnings, December 31, 2020. $171,000 $63,500 Balance Sheet at Dec 31, 2020 Parent Subsidiary Capital stock ($10 per share for both companies). . . . . ..... $2,000,000 $100,000 Retained earnings.... 171,000 63,500 Total equity ..... 2,171,000 163,500 Current liabilities. 219,000 212,000 Dividend payable........ 2,000 1,500 Loan payable to Parent... 4,000 Total liabilities and equity $2,392,000 $381,000 Land........... $800,000 $176,000 Buildings..... 1,000,000 100,000 Accumulated depreciation. . (200,000) (20,000) Equipment.... 250,000 45,000 Accumulated depreciation. (60,000) (5,000) Machinery....... . . . . . . ...; 70,000 14,000 Accumulated depreciation. (8,000) (3,400) Furniture..... 10,000 6,000 Accumulated depreciation. (2,000) (600) Cash......... 172,500 28,450 Accounts receivable, net. 80,000 10,250 Dividend receivable....... 1,500 300 Loan receivable from Subsidiary. 4,000 Inventories.... . ...... 150,000 30,000 Investment in Subsidiary......... 124,000 Total Assets $2,392,000 $381,000