Question

Prout Company owns 80% of the common stock of Sexton Company. The stock was purchased for $1,600,000 on January 1, 2017, when Sexton Company's retained earnings were $800,000. On January 1, 2019, Prout Company sold fixed assets to Sexton Company for $360,000. These assets were originally purchased by Prout Company for $400,000 on January 1, 2009, at which time their estimated depreciable life was 25 years. The straight‐line method of depreciation is used.

On December 31, 2020, the trial balances of the two companies were as shown here:

	Prout Company	Sexton Company
Current Assets	$  568,000	$  271,000
Fixed Assets	1,972,000	830,000
Other Assets	1,000,800	1,600,000
Investment in Sexton Company	1,600,000
Dividends Declared	120,000	100,000
Cost of Goods Sold	942,000	795,000
Other Expenses (including depreciation)	145,000	90,000
Income Tax Expense	187,200	90,000
Total	$6,535,000	$3,776,000
Liabilities	$  305,000	$  136,000
Accumulated Depreciation	375,000	290,000
Sales	1,475,000	1,110,000
Dividend Income	80,000
Common Stock	3,000,000	1,200,000
Retained Earnings 1/1	1,300,000	1,040,000
Total	$6,535,000	$3,776,000

Required:

1. Prepare a consolidated statements workpaper for the year ended December 31, 2020.
2. Assuming that on January 1, 2021, Sexton Company sells the fixed assets purchased from Prout Company to a party outside the affiliated group for $300,000:
   1. Prepare the entry that would have been entered on the books of Sexton Company to record the sale.
   2. Prepare entries for the December 31, 2021, consolidated statements workpaper necessitated by the sale of the assets.
   3. Prepare any workpaper entries that will be needed in the December 31, 2022, consolidated statements workpaper in regard to these fixed assets.

Answer 1

Answer:

CONSOLIDATION WORKSHEET
			Elimination Entries	Non- Controlling interest	Consolidated Balances
	Prout Company	Sexton Company	Debit	Credit
Income Statement
Sales	$   1,475,000	$ 1,110,000	$    116,000			$ 2,585,000
Equity in Sexton Company	116,000
Total Revenue	1,591,000	1,110,000				2,585,000
Cost of goods sold	942,000	795,000				1,737,000
Income tax expense	187,200	90,000				277,200
Other expenses	145,000	90,000		8,000		227,000
Total cost and expenses	1,274,200	975,000				2,241,200
Consolidated income	316,800	135,000				343,800
Non-controlling interest in income ($135,000*20%)					27,000	(27,000)
Controlling interest in Net income	$      316,800	$     135,000	$    116,000	$       8,000	$          27,000	$     316,800
Statement of Retained Earnings
Beginning balance	$   1,380,000	$ 1,040,000	$ 1,040,000			$ 1,380,000
Net income	316,800	135,000	116,000	8,000	27,000	316,800
Dividend declared	(120,000)	(100,000)		80,000	(20,000)	(120,000)
Ending balance	$   1,576,800	$ 1,075,000	$ 1,156,000	$     88,000	$             7,000	$ 1,576,800
Balance Sheet
Current assets	568,000	271,000				839,000
Investment in Sexton Company	1,716,000		120,000	1,836,000
Plant and equipment	1,972,000	830,000	40,000			2,842,000
Accumulated depreciation	(375,000)	(290,000)	16,000	160,000		(809,000)
Other assets	1,000,800	1,600,000				2,600,800
Total assets	4,881,800	2,411,000			-	5,472,800
Other liabilities	305,000	136,000				441,000
Capital Stock	3,000,000	1,200,000	1,200,000			3,000,000
Retained earnings	1,576,800	1,075,000	1,156,000	88,000	7,000	1,576,800
Non-controlling interest in Net assets [400,000+(1,040,000 - 800,000)*20%				448,000	448,000	455,000
Total liabilities and equity	4,881,800	2,411,000	2,532,000	2,532,000		5,472,800