On January 1, 2016, ParentCo acquired a 100% of the voting stock of SubCo using 900,000 shares of ParentCo Stock, valued at $25 per share. Professional fees connected to the acquisition were $900,000 and costs of registering and issuing the new shares were $550,000, both paid in cash. SubCo performs vehicle maintenance service for owners of auto, truck and bus fleets. SubCos balance sheet at acquisition date was as follow:

Cash: 500,000

Account receivables: 2,100,000

Inventory: 6,400,000

Equipment: 16,900,000

Total Assets: 25,900,000

Current Liabilities: 4,200,000

Long-term Liabilities: 6,900,000

Common Stocks: 2,000,000

Additional Paid in Capital: 3,900,000

Retained Earnings: 8,900,000

Total Liabilities and Equity: 25,900,000

In reviewing SubCos assets and liabilities at the acquisition date, ParentCo determined the following:

On a discounted present value basis, the accounts receivables had a fair value of $2,400,000, and the long-term liabilities have a fair value of $7,000,000 with maturity of 20 years.

The replacement cost of the inventory was $7,000,000.

The turnover of short-term assets and liabilities is less than one year.

The current replacement cost of the equipment was $18,000,000. The equipment had a 16-year remaining useful life.

SubCo had long-term service contracts with several large fleet owners. These contracts have been profitable; the present value of expected profits over the remaining term (10 years) of the contracts is estimated at $1,200,000. These contracts meet the criteria for recognition separately.

SubCo had a skilled and experience assembled workforce. ParentCo estimated that the cost to hire and train replacements would be $960,000.

SubCos trade name is well-known among fleet owners and is estimated to have a fair value of $90,000. The estimated remaining life was 3 years.

Following are selected accounts for ParentCo and SubCo as of December 31, 2020 (credit balances indicated by parentheses). Several assets and liabilities accounts have been omitted. (FIRTS CHART IN THE PICTURE)

ParentCo uses the Equity method to account for the investment account.

SubCo has not issued or repurchased stocks in the past 5 years.

REQUIRED:

Prepare the ECOBV amortization schedule. How much is the ECOBV adjustment for each of the five years? (5 points)

Fill in the missing values in the financials statements of ParentCo. (10 points)

Prepare Consolidation Worksheet for the selected accounts of ParentCo and SubCo (i.e. consolidation adjustment entries and consolidated totals). (15 points)

Following are selected accounts for ParentCo and SubCo as of December 31, 2020 (credit balances indicated by parentheses). Several assets and liabilities accounts have been omitted. Account ParentCo SubCo Income Statement Revenues ($6,500,000) (7,230,000) Cost of Service $3,500,000 $3,150,000 Depreciation $500,000 $1,500,000 Amortization $350,000 Interest Expenses $1,250,500 $400,000 Equity in SubCo's income $0 Net Incomel ? ($2,180,000) Statement of Retained Earnings Retained carnings 1/1/2020 (S14,700,000) (S12,985,000) Net Income (above) ($2,180,000) Dividend paid $520,000 $275,000 Retained earnings 12/31/2020 ? (S14,890,000) Balance Sheet Cash $3,480,000 $710,000 Account Receivable $1,520,000 $1,500,000 Part inventory $2,900,000 $3,800,000 Equipment (net) $9,000,000 S6,600,000 Building S14,500,000 $5,000,000 Investment in SubCo Total Assets Current Liabilities LT Liabilities (55,600,000) ($1,500,000) (52,950,000) ($5,150,000) Common Stock Additional paid in capital Retained earnings 12/31/2020 Total liabilities and equities! (S4,150,000) ($2,000,000) (55,830,000) ($3,900,000) ? (S14,890,000) 2017 SubCo reported the following figures for years preceding 2020: 2016 2018 2019 2020 Net Income $900,000 $1,560,000 $1,400,000 $1,300,000 $2,180,000 Dividend $170,000 $220,000 $415,000 $270,000 $275,000 Following are selected accounts for ParentCo and SubCo as of December 31, 2020 (credit balances indicated by parentheses). Several assets and liabilities accounts have been omitted. Account ParentCo SubCo Income Statement Revenues ($6,500,000) (7,230,000) Cost of Service $3,500,000 $3,150,000 Depreciation $500,000 $1,500,000 Amortization $350,000 Interest Expenses $1,250,500 $400,000 Equity in SubCo's income $0 Net Incomel ? ($2,180,000) Statement of Retained Earnings Retained carnings 1/1/2020 (S14,700,000) (S12,985,000) Net Income (above) ($2,180,000) Dividend paid $520,000 $275,000 Retained earnings 12/31/2020 ? (S14,890,000) Balance Sheet Cash $3,480,000 $710,000 Account Receivable $1,520,000 $1,500,000 Part inventory $2,900,000 $3,800,000 Equipment (net) $9,000,000 S6,600,000 Building S14,500,000 $5,000,000 Investment in SubCo Total Assets Current Liabilities LT Liabilities (55,600,000) ($1,500,000) (52,950,000) ($5,150,000) Common Stock Additional paid in capital Retained earnings 12/31/2020 Total liabilities and equities! (S4,150,000) ($2,000,000) (55,830,000) ($3,900,000) ? (S14,890,000) 2017 SubCo reported the following figures for years preceding 2020: 2016 2018 2019 2020 Net Income $900,000 $1,560,000 $1,400,000 $1,300,000 $2,180,000 Dividend $170,000 $220,000 $415,000 $270,000 $275,000