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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.

Here’s the best way to solve it.

Expert-verified 100% (3 ratings) Share 2

Answer:

CONSOLIDATION WORKSHEET
Non-
Controlling Consolidated
Elimination Entries interest Balances
Prout Sexton
Company 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

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