Parent Inc. acquired a 72% share in Subsidiary Inc. on January 1, 2015 for $720000 At the date

of acquisition, Subsidiary had ordinary shares of $500000 and retained earnings of $480000. On this date, all assets and liabilities of Subsidiary were fairly valued, except for the following items:

Equipment: Overvalued by $110000 (9 years useful life left)

Long-term Bonds Payable: Undervalued by $9600 (matures 10 years from date of acquisition)

Additional Information:

Parent used the cost method to account for its investment in Subsidiary.

Subsidiary manufactures various types of plastic products. It purchases its raw materials from different

suppliers. Parent sells some of these raw materials to Subsidiary at a markup of 30% on cost. Sales of raw materials by Parent to Subsidiary were $300000 and $450000 in 2018 and 2019, respectively. Subsidiary still had the following inventory bought from Parent left at year-end:

2018: $120000

2019: $90000

Subsidiary sells some of the plastic products it manufactures to Parent at a markup of 20% on cost, which in turn sells it to customers. Sales of plastic products by Subsidiary to Parent were $150000 and $200000 in 2018 and 2019, respectively. Parent still had the following inventory bought from Subsidiary left at year end.

2018: $37500

2019: $26400

Parent still owed Subsidiary $45000 on December 31, 2019.

Subsidiary borrowed $100000 from Parent during 2015. The principle amount of the loan is due on

December 31, 2025 and interest at an annual rate of 5% is payable on December 31 annually. Interest

for 2019 has been paid in full.

Subsidiary sold a piece of land with a carrying value of $300,000 to Parent during 2018 for $220000 During 2019, Parent sold 25% of this land to a developer for $67,000.

Parent sold equipment to Subsidiary on January 1, 2017 for a gain of $60000. On the date of sale, the

equipment had a remaining useful life of 6 years and no residual value. Both companies use straight-line

method for depreciation.

Parent charges Subsidiary a $50000 annual management fee. Subsidiary has paid the management fee

for 2019.

Goodwill on acquisition was written down in 2018 by $12000 and in 2019 by $8000

The two companies paid the following dividends in cash during 2019:

Parent: $96000

Subsidiary: $31800

Both companies have a marginal tax rate of 25%.

Any premium or discounts on long-term bonds are amortized on a straight-line method.

Individual companies' financial statements can be found under the Information tab.

Required:

Prepare the consolidated income statement for the Parent Group for the year ended December 31 , 2019, using the entity method.

Prepare the consolidated balance sheet for the Parent Group as at December 31 , 2019, using the entity

method. (Note: show PP&E separated into cost and accumulated depreciation, not as a net amount).

Parent Ing Subsidiary Inc 31 2019 31 2019 Statement of Income Statement of Income $ 3 825, 010 $ 1906 010 Cost of sales 2754 090 Cost of sales 1439030 Gross profit 1071090 Gross profit 468 970 Other income 184 971 Other income 193 090 $ 1265 971 $ BEE 970 Expenses Expenses Amortization expense 112 350 Amortization experise 76 300 Interest expense 35 0010 Interest expense 20 090 Either expenses GRIFFIN Other expenses 357 850 $ 829 050 $ 454 150 Net income before tan 428 921 Net income before tall 21 1820 Income tax 106 700 Income tax 53 090 Net income after tan 320. 221 Net income after tan 158 820 Statement of Financial Position Statement of Financial Position Current Assets Current Assets 50 ADD $ 140 090 Accounts receivable BRIDGE Accounts receivable 530 720 Inventory 503 500 Inventory 537 500 $ 1 174 596 $ 1 208 2 20 Non- current assets Non- current assets Investment in Subsidiary Ine 20 .and Property , plant & equipment - cost 1090. 090 Non- current loan to Subsidiary ine to0 . and Property , plant & equipment - accumulated 708 500 Property plant & equipment - cost 1 . BOB ODD mortization Property plant & equipment - accumulated 1043 250 $ 301500 amortization $ 1281 750 Total assets 1589 720 Total assets $ 2556 346 Current liabilities Current liabilities Accounts payable 196 790 Accounts payable 236 200 196 700 236 2010 Non - current liabilities Non- current liabilities Non- current loan 120 090 Non - current loan 210.090 Bonds payable 280 .090 Bonds payable 490 090 40101 090 $ 700 and Shareholders equity Shareholders equity Ordinary shares 50 0 .090 Ordinary shares 650 OLD Fietaired earnings 493020 Fietaired earnings 70146 993.020 $ 1620 146 equity $ 1589 720 equity $ 256 6 346