On January 2, Year 4, Brady Ltd. purchased 80% of the outstanding shares of Partridge Ltd. for $4,320,000. Partridge's statement of financial position and the fair values of its identifiable assets and liabilities for that date were as follows:

The patents had a remaining useful life of ten years on the acquisition date. The bonds were issued on January 1, Year 4, and mature on December 31, Year 13. Goodwill impairment losses were recorded as follows:

• Year 4: $31,000

• Year 6: $18,000

Partridge declared and paid dividends of $110,000 in Year 6.

On December 31, Year 6, the financial statements of the two companies were as follows:

(a) Prepare consolidated financial statements on December 31, Year 6.

(b) Assume that Brady is a private entity, uses ASPE, and chooses to use the cost method to account for its investment in Partridge. Which items on Brady's separate-Entity financial statements would have amounts different from those shown? Compute the cost method balances of these items.

(c) Calculate the current ratio, debt-to-equity ratio, and return on total shareholders' equity for Brady's Year 6 financial statements assuming that the 

(i) Equity method was used to report its investment in Partridge;

(ii) Cost method was used to report its investment in Partridge; and 

(iii) Consolidated statements were used to report the business combination with Partridge. 

Round percentages to one decimal point and other ratios to two decimal points.

(d) Briefly explain which of the different reporting methods in (c) report the highest 

(i) Liquidity

(ii) Risk of insolvency

(iii) Profitability
*(e) Prepare the consolidated financial statements using the worksheet approach.

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Carrying Amount Fair Value Plant and equipment (net) Patents (net) $4,600,000 $4,600,000 1,100,000 1,620,000 2,320,000 Inventory 2,100,000 Accounts receivable 1,600,000 1,600,000 Cash 520,000 520,000 $9,920,000 Ordinary shares Retained earnings $2,021,000 2,620,000 10% bonds payable 3,420,000 3,100,000 Accounts payable 2,179,000 $9,920,000 2,179,000 STATEMENT OF FINANCIAL POSITION Brady Partridge $ 8,200,000 Plant and equipment (net) Patents (net) $5,200,000 720,000 Investment in Partridge Ltd. (equity method) 4,584,000 Inventory 4,800,000 2,000,000 Accounts receivable 1,100,000 1,400,000 Cash 620,000 420,000 $19,104,000 $9,940,000 Ordinary shares Retained earnings $ 5,100,000 $2,021,000 6,382,000 3,279,000 Bonds payable 4,100,000 3,100,000 Accounts payable 1,540,000 $9,940,000 3,522,000 $19,104,000 INCOME STATEMENTS Sales $10,100,000 $5,100,000 Equity method income 136,000 10,236,000 5,100,000 Cost of goods purchased 6,950,000 2,910,000 Change in inventory 72,000 120,000 Depreciation expense 920,000 402,000 Patent amortization expense 120,000 Interest expense 490,000 310,000 Other expenses 700,000 870,000 Income taxes 620,000 9,752,000 160,000 4,892,000 $ 208,000 Profit 484,000