The balance sheet of Drake Enterprises as at December 31, Year 5, is as follows:

Assets
Cash	$	99,000
Accounts receivable		143,000
Inventory		191,400
Property, plant and equipment		1,692,000
Accumulated depreciation		(900,000	)
	$	1,225,400
Liabilities and Equity
Current liabilities	$	242,000
Bonds payable		352,000
Common shares (100,000 shares)		220,000
Retained earnings		411,400
	$	1,225,400

Effective January 1, Year 6, Drake proposes to issue 82,500 common shares (currently trading at $20 per share) for all of the common shares of Hanson Industries. In determining the acquisition price, the management of Drake noted that Hanson Industries has unrecorded customer service contracts and directed its accounting staff to reflect this when recording the acquisition. An independent appraiser placed a value of $150,000 on this unrecorded intangible asset. Direct costs associated with the acquisition were as follows:

Costs of issuing shares	$	44,000
Professional fees		38,500
	$	82,500

The balance sheet of Hanson Industries as at December 31, Year 5, is as follows:

	Carrying Amount			Fair Value
Cash	$	55,000		$	55,000
Accounts receivable		275,000			280,500
Inventory		187,000			178,200
Property, plant and equipment		1,169,000			1,017,500
Accumulated depreciation		(300,000	)
	$	1,386,000
Current liabilities	$	137,500			137,500
Liability for warranties		99,000			129,800
Common shares		660,000
Retained earnings		489,500
	$	1,386,000

Hanson Industries is to be wound up after the sale.

Required:

(a) Assume that the shareholders of Hanson accept Drakes offer on the proposed date. Prepare Drakes January 1, Year 6, consolidated balance sheet after the proposed transaction occurred. (Negative amounts should be indicated by a minus sign.)

(b) Assume that Drake is a private entity, uses ASPE, and chooses to use the equity method to account for its investment in Hanson. Prepare Drakes January 1, Year 6, balance sheet after the proposed transaction occurred. (Negative amounts should be indicated by a minus sign.)

(c) Calculate the debt-to-equity ratio under Consolidated and Equity Method. (Round your answers to 2 decimal places.)

	Consolidated	Equity Method
Debt-to-equity ratio

(d) Prepare Drakes consolidated balance sheet after the proposed transaction occurred using the worksheet approach. (Values in the first two columns and last column (the "parent", "subsidiary" and "consolidated" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Entry" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Leave no cells blank - be certain to enter "0" wherever required. Omit $ sign in your response.)

Consolidated Financial Statement Working Paper
Drake Company
Consolidated Balance Sheet
January 1, Year 6
				Entries
	Drake	Hanson		Dr.		Cr.	Consolidated
Cash	$	$		$		$	$
Accounts receivable
Inventory
Property, plant and equipment
Accumulated depreciation
Investment in Hanson
Acquisition differential
Customer service contracts
Goodwill
	$	$					$
Current liabilities	$	$					$
Bonds payable
Liability for warranties
Common shares
Retained earnings
Total	$	$		$		$	$