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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

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 straightline 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.

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