Prout Company owns 80% of the common stock of Sexton Company. The stock was purchased for $1,600,000

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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, 2022, when Sexton Company’s retained earnings were $800,000. On January 1, 2024, 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 straight- line method of depreciation is used.


Required:
A. Prepare a consolidated statements workpaper for the year ended December 31, 2025.
B. Assuming that on January 1, 2026, 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, 2026, consolidated statements workpaper necessitated by the sale of the assets.
(3) Prepare any workpaper entries that will be needed in the December 31, 2027, consolidated statements workpaper in regard to these fixed assets.
C. If you completed Problem 7- 4, compare the consolidated balance obtained in requirement A to those obtained in Problem 7- 4.

Data from problem 4

Prout Company owns 80% of the common stock of Sexton Company. The stock was purchased for $1,600,000 on January 1, 2022, when Sexton Company’s retained earnings were $800,000. On January 1, 2024, 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, 2014, at which time their estimated depreciable life was 25 years. The straight- line method of depreciation is used.

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Advanced Accounting

ISBN: 9781119794653

8th Edition

Authors: Debra C. Jeter, Paul K. Chaney

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