Parent Company owns parts of three different subsidiaries. The balance sheets and income statements for these four companies are listed below. Note that, in the financial statements of Parent, its ownership interest in the third subsidiary has been accounted for using the equity method.

Required:
1. Prepare a consolidated balance sheet for Parent and its subsidiaries.
2. Prepare a consolidated income statement for Parent and its subsidiaries.
3. Interpretive Question: Return on sales is net income divided by total sales. Without doing any computations, state what would happen to consolidated return on sales if Subsidiary 3 were consolidated rather than accounted for using the equity method.Explain.

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Percentage of the Parent's Ownership 90% 60% 40% Subsidiary 3 Parent Subsidiary 1 Subsidiary 2 Assets S 60 $ 45 S 200 500 1,500 432 Cash 80 Accounts receivable 100 110 55 Plant and equipment Investment in Subsidiary 1 Investment in Subsidiary 2 Investment in Subsidiary 3 Total assets.. 600 250 400 99 110 $2,841 S 760 $ 405 $ 535 S 280 S 240 165 $ 260 $1,141 Liabilities Equity Total liabilities and equity 1,700 480 275 S 760 S 2,841 S 405 535 Revenues S 3,500 Sales. Income from Subsidiary 1 Income from Subsidiary 2 Income from Subsidiary 3 Total revenues S 3,650 S 12,000 S7,735 585 600 280 $9,200 (5,000) $4,200 S 3,500 (2,500) $1,000 S 3,650 (3,000) S 650 $ 12,000 (11,300) $ 700 Expenses. Net income 883