4. Perform ratio analysis. Compute earnings per share for (1) the separate financial statements of Parent Inc. prepared in Milestone 1 and (2) the consolidated financial statements contained in the solution for the pro forma consolidation worksheet prepared in Milestone 3. Also, calculate current ratio and return on average stockholders' equity for the separate company and consolidated financial statements.
5. Write a memorandum (as a Word document) to Ms. Franklin summarizing the results of your analysis, including a summary of the financial ratios you computed and your recommendation. Attach copies of both sets of pro forma financial statements of Parent Inc. and the pro forma consolidation worksheet.

Table 1

Parent Inc. Actual Financial Statements for 2020 and Subsidiary Corporation Projected Financial Statements for 2021

	Parent 20X0 Actual	Subsidiary 20X1 Projected
Sales	$800,000	$100,000
Cost of goods sold	(485,000)	(55,000)
Operating expenses	(219,000)	(10,000)
Income before taxes	96,000	35,000
Income tax expense	(38,400)	(14,000)
Net income	57,600	21,000
Retained earnings, January 1	23,000	14,500
Add: net income	57,600	21,000
Less: dividends	(38,000)	(7,000)
Retained earnings, December 31	42,600	28,500
Cash	36,200	19,500
Accounts receivable	39,000	13,000
Inventory	26,000	12,000
Property, plant, and equipment	673,000	213,000
Accumulated depreciation	(490,000)	(28,000)
Total assets	284,200	229,500

	Parent 20X0 Actual	Subsidiary 20X1 Projected
Accounts payable	44,600	21,000
Common stock *	190,000	150,000
Paid-in capital in excess of par	7,000	30,000
Retained earnings	42,600	28,500
Total liabilities and stockholders' equity	284,200	229,500
* Parent: $12.50 par; Subsidiary: $75 par

Answer rating: 100% (QA)

Memorandum To Ms Franklin From Name Date Date Subject Results of Ratio Analysis This memorandum provides a summary of the results of the ratio analysis conducted on the financial statements of Parent ... View the full answer