Condensed financial information for Prince Company and South Company follows:

Separate Statements of Income and Retained Earnings
for the Year Ended December 31, 2011

Prince Company purchased 80% of South Company’s common stock for $1,000,000 at the beginning of 2010 and uses the partial equity method to account for the investment. At the time of purchase, South Company reported a common stock balance of $1,000,000 and a retained earnings balance of $250,000. On July 1, 2011, Prince Company purchased 60% of South Company’s 10% bonds for $315,000. The bonds mature on December 31, 2013. Interest is paid on June 30 and December 31.

Required:
A. Prepare the entries made on the books of Prince Company during 2011 to record its interest in South Company and account for the bond investment.
B. Prepare a consolidated financial statements workpaper on December 31,2011.

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Balance Sheet December 31, 2011 Prince South Company Company 700,000 Current Assets Investment in South Company Stock Investment in South Company Bonds Other Assets 826,000 1,120,000 312,000 1,252,000 1,400,000 3,510,000 %2,100,000 500,000 40,000 160,000 1,000,000 400,000 2,100,000 Totals Bonds Payable Premium on Bonds Payable Other Liabilities Comon Stock Retained Earnings 300,000 20,000 380,000 2,000,000 810,000 ,510,000 Totals Prince South Company Company 3,000,000 160,000 100,000 3,260,000 2,800.000 460,000 600,000 1,060,000 (250,000) $2,000,000 Sales Equity in Subsidiary Income Other Income Total Revenues Expenses Net Income 1/1 Retained Earnings Balance 200,000 2,200,000 2,000,000 200,000 300,000 500,000 100,000) 400,000 Dividends 12/31 Retained Earnings Balance