Trial balances for Phan Company and its subsidiary Sato Company on December 31, 2023, are as follows:

Sato Company issued 40,000 shares of stock on July 1, 2019, its date of incorporation. No other capital stock transactions were undertaken by Sato Company after that time. Phan Company acquired its investment in Sato Company through open- market purchases of stock as follows:

On 1/1/2022, Phan has purchased 9,000 of Sato’s 40,000 shares outstanding (22.5%) and because the ownership percentage is between 20% and 50%, the equity method is used to account for the investment. On 1/1/2023, Phan purchases another 12,500 shares (or another 31.25%) and obtains control since it now owns 53.75% of Sato. On the date of acquisition, Phan decides to account for the investment using the cost method (recall that because the investment will be consolidated, the method used to account for the investment on the parent’s books does not matter). Assume that any difference between implied and book values of the interest acquired relates to Sato Company land, which is included in Other Assets.

Required:
A. Prepare the journal entries needed on the Phan’s books for 2022 and 2023. Assume that Sato earned $150,000 income in 2022.
B. Prepare a consolidated financial statements workpaper for Phan Company and its subsidiary Sato Company on December 31, 2023.

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Current Assets Investment in Sato Company Other Assets Dividends Declared Cost of Goods Sold Other Expenses Liabilities Capital Stock, $10 par Paid in Capital 1/1 Retained Earnings Sales Gain on revaluation Dividend Income Phan $165,500 361,200 920,000 150,000 1,100,000 350,000 $3,046,700 $142,050 600,000 100,000 353,100 1,800,000 13,925 37,625 $3,046,700 Sato $138,000 672,000 70,000 320,000 130,000 $1,330,000 $160,000 400,000 165,000 605,000 $1,330,000