Perez Co. acquired 100% of Sanchez Co. on 1/1/2018. On 12/31/2018, the two companies prepared the following balances (except the retained earnings account balance on 1/1/2018):

Perez Sanchez

Cash 30,000 35,000

Inventory 105,000 97,500

Investment in Sanchez Co. 222,000 0

Land 111,000 97,000

Cost of goods sold 225,000 59,500

Other expenses 40,000 40,000

Dividend declared 15,000 10,000

Account Payable 77,500 22,500

Common stock 160,000 75,000

Other contributed capital 35,000 17,500

Retained earnings, 1/1 25,000 54,000

Sales 380,000 170,000

Equity in Subsidiary Income 70,500 0

c.What is method is being used by Perez Co. to account for its investment in Sanchez Co.? Explain why?

d.Prepare a workpaper for the preparation of the consolidated financial statements on 12/31/2018. Assume that any difference between the value implied by the purchase price and book value of equity acquired relates to good