Flathead Corp. acquired 80% of the outstanding shares of Ribbon Co. on January 1, 20X9, for $644,000 in cash. Of this price, $52,500 was attributed to equipment with a 10 year remaining useful life. Goodwill of $75,000 had also been identified. Flathead uses the incomplete equity method to account for its investment in Ribbon. On January 1, 20Y0, Flathead issued $280,000, 8%, 10 year bonds, at $245,590, to yield 10%. The bonds pay interest annually on December 31. On July 1, 20Y1, Ribbon purchased 60% of these bonds on the open market at a price of $158,306 (which does not include accrued interest of $6,720 up to the date of purchase) for an effective yield of 9%. During 20Y1, Flathead began to sell merchandise to Ribbon. During that year, inventory costing $112,000 was transferred at a price of $140,000. All but $14,000 (at Flathead's selling price) of these goods were resold to outside parties by year's end. During 20Y2, Flathead sold merchandise to Ribbon costing $150,000 at a transfer price of $187,500. Of this amount, $50,000 of these goods ( at Flathead's selling price) remained in the ending inventory of Ribbon. Ribbon still owed $30,000 for inventory shipped from Flathead during December 20Y2. On July 1, 20Y0, Ribbon sold to Flathead a piece of equipment with an original cost of $40,000 and accumulated depreciation of $15,000 for $18,000. At the date of sale, the equipment has a remaining life of five years with no expected salvage value. Both companies use straight line depreciation for its depreciable assets. The attached consolidated worksheet has the financial information available for the two companies for the year ended December 31, 20Y2.

Required:

(1) Prepare a consolidated worksheet, in proper financial statement format, to combine Flathead Corp. and Ribbon Co. for the year ended December 31, 20Y2. Be sure to provide explanations for all consolidation entries made.

(2) Prepare a consolidated income statement, in proper form, for Flathead Corp. and Subsidiary for the year ended December 31, 20Y2. Show all appropriate computations to support your statement.

(3) Prepare a classified consolidated balance sheet, in proper form, for Flathead Corp. and Subsidiary as of December 31, 20Y2.