On November 30, 2017, Parent Ltd Inc. issued a tender offer to acquire at least 51% of the outstanding common shares of Subsidiary Ltd Corporation by a share-for-share exchange. One new Parent Ltd share would be issued in exchange for each Subsidiary Ltd share offered by the Subsidiary Ltd shareholders. During December 2017, Subsidiary Ltd shareholders tendered 30,000 shares, which amounted to 75% of the Parent Ltd shares.

The share exchange took place on December 31, 2017. At the exchange date, the Parent Ltd shares had a market value of $40 per share, which was typical of the Parent Ltds share price for the previous 6 weeks. At the date of acquisition, Subsidiary Ltds shareholders equity consisted of $700,000 in the common share account and $580,000 in retained earnings. The book values of Subsidiary Ltds assets and liabilities approximated their fair values except for buildings, the fair value of which was $120,000 in excess of book value. The excess of purchase price over book value was considered to be goodwill.

On December 31,2022, the condensed separate-entity balance sheets of the two companies were as shown in Exhibit A. The income statements are shown in Exhibit B.

Additional information:

1.Parent Ltd accounts for its investment in Subsidiary Ltd on the cost basis.

2.At the date of acquisition, the remaining useful life of the buildings was 10 years.

3.In 2018, Subsidiary Ltd sold land to Parent Ltd at a price that was $100,000 higher than its carrying value on Subsidiary Ltds books.

4.In early 2020, Parent Ltd sold equipment to Subsidiary Ltd for $280,000. At the date of the sale, the equipment had a net book value of $200,000. The remaining useful life of the equipment was 5 years. Subsidiary Ltd amortizes on a straight-line basis with a full year depreciation in the year of acquisition.

5.Subsidiary Ltd regularly sells inventory to Parent Ltd. On December 31, 2021, Parent Ltd held inventory of $120,000 that had been purchased from Subsidiary Ltd. During2022, Parent Ltd purchased $900,000 from Subsidiary Ltd. At December 31,2022, Parent Ltds inventory included $200,000 that had been purchased from Subsidiary Ltd. Subsidiary Ltds gross margin is 30% of selling price.

6.During2022, Subsidiary Ltd paid $57,000 in management fees to Parent Ltd.

7.There has been no impairment of goodwill.

Required:

Prepare the consolidated income statement, statement of retained earnings, and balance sheet for Parent Ltd Inc. as of December 31,2022.

EXHIBIT A

Separate-entity Balance Sheets December 31,2022

Parent Ltd Subsidiary Ltd

Cash $ 800,000 $ 350,000

Accounts receivable 1,100,000 450,000

Inventories 900,000 600,000

Total current assets 2,800,000 1,400,000

Land 600,000 300,000

Buildings and equipment (net) 1,900,000 900,000

Investment in Subsidiary Ltd 1,200,000

Total assets $ 6,500,000 $ 2,600,000

Accounts payable $ 950,000 $ 250,000

Long-term liabilities 1,550,000 550,000

Total liabilities 2,500,000 800,000

Common shares 2,400,000 700,000

Retained earnings 1,600,000 1,100,000

Total shareholders equity 4,000,000 1,800,000

Total liabilities and shareholders equity $ 6,500,000 $ 2,600,000

EXHIBIT B

Separate-entity Income Statements Year Ended December 31,2022

Parent Ltd Subsidiary Ltd

Sales revenue $ 9,450,000 $ 4,400,000

Other income 350,000 100,000

9,800,000 4,500,000

Expenses:

Cost of goods sold 5,670,000 3,080,000

General, selling and administrative expenses 3,150,000 925,000

Interest expense 90,000 35,000

8,910,000 4,040,000

Net income 890,000 460,000

Retained earnings, December 31, 2021 1,410,00 940,000

2,300,000 1,400,000

Less dividends declared (700,000) (300,000)

Retained earnings, December 31,2022 $ 1,600,000 $ 1,100,000