On January 1 2011 Paxton Company purchased a 70 interest
On January 1, 2011, 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, 2011, the fair value of the assets and liabilities of Sagon Company was equal to their book value except for bonds payable. Sagon Company had outstanding a $1,000,000 issue of 6% bonds that were issued at par and that mature on January 1, 2016. Interest on the bonds is payable annually, and the yield rate on similar bonds on January 1, 2011, is 10%. Paxton Company reported net income from independent operations of $300,000 in 2011 and $250,000 in 2012. Sagon Company reported net income of $100,000 in 2011 and $120,000 in 2012. Neither company paid or declared dividends in 2011 or 2012.
Paxton uses the partial equity method to account for its investment in Santos.
Despite two profitable years, changes in the market during 2012 for Sagon's product line have caused Paxton to be concerned about the future profitability of the unit. The following data are collected to test for goodwill impairment at 12/31/12. (No goodwill impairment has been recorded on the parent's books.) Paxton chose to measure goodwill impairment using the present value of future cash flows to estimate the fair value of the reporting unit (Sagon).

A. Prepare in general journal form the entries necessary in the consolidated statements workpapers for the years ended December 31, 2011, and December 31, 2012.
B. Prepare in good form a schedule or t-account showing the calculation of the controlling and noncontrolling interest in consolidated net income for the years ended December 31, 2011, and December 31,2012.
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