Passenger Products purchased 65 percent of Seat Sales Company’s stock at underlying book value on January 1, 20X3. At that date, the fair value of the noncontrolling interest was equal to 35 percent of the book value of Seat Sales. Seat Sales reported shares outstanding of $300,000 and retained earnings of $100,000. During 20X3, Seat Sales reported net income of $50,000 and paid dividends of $5,000. In 20X4, Seat Sales reported net income of $70,000 and paid dividends of $20,000.

The following transactions occurred between Passenger Products and Seat Sales in 20X3 and 20X4:

a. Seat Sales sold camera equipment to Passenger for a $40,000 profit on December 31, 20X3. The equipment had a five-year estimated economic life remaining at the time of intercompany transfer and is depreciated on a straight-line basis.

b. Passenger sold land costing $30,000 to Seat Sales on June 30, 20X4, for $41,000.

Required

a. Assuming that Passenger uses the modified equity method to account for its investment in Seat Sales:

(1) Give the journal entries recorded on Passenger’s books in 20X4 related to its investment in Seat Sales.

(2) Give all consolidation entries needed to prepare a consolidation worksheet for 20X4.

b. Assuming that Passenger uses the cost method to account for its investment in Seat Sales:

(1) Give the journal entries recorded on Passenger’s books in 20X4 related to its investment in Seat Sales.

(2) Give all consolidation entries needed to prepare a consolidation worksheet for 20X4.