PROBLEM 5-2 Workpaper Entries and Consolidated Net Income for Two Years, Partial Equity Method On January 1, 2004, Paxton Company purchased a 70% interest in Sagon Company for $1,300,000, at which time Sagon Company had retained earnings of $500,000 and capital stock of $1,000,000. On January 1, 2004, the fair value of the assets and liabilities of Sagon Company was equal to their book value except for bonds payable. Sagon Company had out- standing a $1,000,000 issue of 6% bonds that were issued at par and that mature on January 1, 2009. Interest on the bonds is payable annually, and the yield rate on similar bonds on January 1, 2004, is 10%. Paxton Company reported net income from independent opera- tions of $300,000 in 2004 and $250,000 in 2005. Sagon Company reported net income of $100,000 in 2004 and $120,000 in 2005. Neither company paid or declared dividends in 2004 or 2005. Palmero uses the partial equity method to account for its investment in Santos. Required: A. Prepare in general journal form the entries necessary in the consolidated statements workpapers for the years ended December 31, 2004, and December 31, 2005