QUESTION 5 Not yet answered Marked out of 70.00 P Flag question Consolidation at the end of the first year subsequent to date of acquisition-Equity method (purchase price equals book value) Assume that a parent company acquires its subsidiary on January 1, 2016, by exchanging 40,000 shares of its $1 par value Common Stock, with a market value on the acquisition date of $29 per share, for all of the outstanding voting shares of the acquiree. You have been charged with preparing the consolidation of these two companies at the end of the first year On the acquisition date, all of the subsidiary's assets and liabilities had fair values equaling their book values. Following are financial statements of the parent and its subsidiary for the year ended December 31, 2016. Parent Subsidiary Parent Subsidiary Balance sheet Income statement Sales Cost of goods sold Gross profit Equity income Operating expenses $2,960,000 1,685,000 Assets (2,072,000) (1,008,000) Cash 706,920 432,880 378,880 429,760 574,240 500,640 888,000 677,000 Accounts receivable 240,200 Inventory (562,400 (436,800) Equity investment 1,359,920 565,800 240,200 Property, plant&equipment 2,170,240 926,240 Net income $5,190,200 2,289,520 Statement of retained earnings BOY retained earnings Net income Dividends 1,881,600 868,000 Liabilities and stockholders' equity 565,800 240,200 Accounts payable 112,160) (40,280) Accrued liabilities $2,335,240 1,067,920 Long-term liabilities 216,640 160,160 257,520 209.440 560,000 414,400 112,000 1,966,400 180,000 2,335,240 1,067,920 $5,190,200 2,289,520 Ending retained earnings Common stock APIC Retained earnings