Problem 3 Parent Corporation purchased 70% of the outstanding stock of Sub for $1,300,000 on January 1, 2020. At the time of the acquisition, the stockholder's equity of Sub was as follows. Common Stock Paid-in-capital Retained Earnings $750,000 300,000 550,000 Any excess of purchase price over the underlying book value is assigned to equipment with a 15-year life. Separate financial information for 2020 and 2021 for Parent and Sub is as follows Parents Income Statements 2020 2021 Sales 5,500,000 7,200,000 Cost of Sales 3,000,000 4,100,000 Gross Profit 2,500,000 3,100,000 Operating Expenses 1,260,000 1.740,000 Net Income 1,240,000 1,360,000 Sub Income Statements 2020 2021 Sales 3,670,000 3,812,000 Cost of Sales 1,730,000 1,880,000 Gross Profit 1,940,000 1,932,000 Operating Expenses 1,270,000 1.212,000 Net Income. 670,000 720,000 Subs Equity at 12/31 2,450,000 2,890,000 Intercompany Transactions - Inventory Sales Parent to Sub 800,000 900,000 Gross Profit Percentage 20% 20% Percentage of Sales Remaining In Inventory 35% 45% Sales Sub to Parent 300,000 450,000 Gross Profit Percentage 25% 25% Percentage of Sales Remaining In Inventory 30% 50%