Server Corporation is a majority-owned subsidiary of Proxy Corporation. Proxy acquired 75 percent ownership on January 1, 20X3, for $133,500. At that date, Server reported common stock outstanding of $60,000 and retained earnings of $90,000, and the fair value of the noncontrolling interest was $44,500. The differential is assigned to equipment, which had a fair value $28,000 more than book value and a remaining economic life of seven years at the date of the business combination. Server reported net income of $30,000 and paid dividends of $12,000 in 20X3.

Required

a. Give the journal entries recorded by Proxy during 20X3 on its books if it accounts for its investment in Server using the equity method.

b. Give the consolidation entries needed at December 31, 20X3, to prepare consolidated financial statements.