On January 1, 2020, Cantona Company acquired 80% of the common stock of Baggio Company for $560,000. On this date Baggio had total owners' equity of $540,000, including retained earnings of $240,000. During 2020, Baggio had net income of $60,000 and paid no dividends. Any excess of cost over book value is attributable to land, undervalued $10,000, and to goodwill. On January 1, 2021, Cantona held merchandise acquired from Baggio for $10,000. During 2021, Baggio sold merchandise to Cantona for $100,000, of which $20,000 is held by Cantona on December 31, 2021. Baggios usual gross profit on affiliated sales is 40%. On December 31, 2021, Cantona still owes Baggio $20,000 for merchandise acquired in December. On January 1, 2021, Cantona sold to Baggio some equipment with a cost of $50,000 and a book value of $20,000. The sales price was $40,000. Baggio is depreciating the equipment over a five-year life, assuming no salvage value and using the straight-line method. As at December 31, 2021, the trial balances of Cantona and Baggio are provided on the next page. Required: i) Which method is being used by Cantona to account for its investment in Baggio? Provide 2 reasons to justify your selection. ii) Prepare and complete the worksheet for consolidated financial statements for the year ended December 31, 2021. Prepare all supporting schedules. Round all computations to the nearest dollar. computations to the nearest dollar.

Trial Balances: Account Titles Inventory, December 31 Other Current Assets Investment in Subsidiary Other Long-Term Investments Land Buildings and Equipment Accumulated Depreciation Other Intangibles Current Liabilities Bonds Payable Premium on Bonds Payable Other Long-Term Liabilities Common Stock Other Paid-in Capital Retained Earnings Net Sales Cost of Goods Sold Operating Expenses Dividend Income Gain on Sale of Equipment Dividends Declared TOTALS Trial Balance as at December 31, 2021 Cantona Baggio $ $ 100,000 80,000 253,000 450,000 560,000 50,000 30,000 140,000 70,000 315,000 400,000 (208,000) (110,000) 60,000 (150,000) (100,000) (100,000) (5,000) (200,000) (150,000) (200,000) (100,000) (100,000) (200,000) (421,000) (300,000) (600,000) (380,000) 350,000 180,000 140,000 100,000 (24,000) (20,000) 60,000 30,000 0 0