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

Assets
Cash	$	127,600
Accounts receivable		160,000
Inventory		208,400
Property, plant and equipment		1,862,000
Accumulated depreciation		(917,000	)
	$	1,441,000
Liabilities and Equity
Current liabilities	$	259,000
Bonds payable		369,000
Common shares (117,000 shares)		237,000
Retained earnings		576,000
	$	1,441,000

Effective January 1, Year 6, Drake proposes to issue 91,000 common shares (currently trading at $23 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 $167,000 on this unrecorded intangible asset. Direct costs associated with the acquisition were as follows:

Costs of issuing shares	$	61,000
Professional fees		55,500
	$	116,500

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

	Carrying Amount			Fair Value
Cash	$	72,000		$	72,000
Accounts receivable		292,000			306,000
Inventory		204,000			186,700
Property, plant and equipment		1,339,000			1,204,500
Accumulated depreciation		(317,000	)
	$	1,590,000
Current liabilities	$	154,500			154,500
Liability for warranties		116,000			148,500
Common shares		677,000
Retained earnings		642,500
	$	1,590,000

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.

(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.

(c) Calculate the debt-to-equity ratio under Consolidated and Equity Method.

	Consolidated	Equity Method
Debt-to-equity ratio

(d) Prepare Drakes consolidated balance sheet after the proposed transaction occurred using the worksheet approach.

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	$	$		$		$	$