(Note: This is the same Problem as Problem 7-4, but assuming the use of the partial equity method.) Prout Company owns 80% of the common stock of Sexton Company. The stock was purchased for $1,600,000 on January 1, 2009, when Sexton Company’s retained earnings were $800,000. On January 1, 2011, Prout Company sold fixed assets to Sexton Company for $360,000. These as- sets were originally purchased by Prout Company for $400,000 on January 1, 2001, at which time their estimated depreciable life was 25 years. The straight-line method of depreciation is used.

On December 31, 2012, the trial balances of the two companies were as shown here:

Required:
A. Prepare a consolidated statements workpaper for the year ended December 31, 2012.
B. Assuming that on January 1, 2013, 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, 2013, consolidated statements workpaper necessitated by the sale of the assets.
(3) Prepare any workpaper entries that will be needed in the December 31, 2014, consolidated statements workpaper in regard to these fixedassets.

Prout Company Sexton Company 568,000 1,972,000 1,000,800 1,820,000 120,000 942,000 271,000 830,000 1,600,000 Current Assets Fixed Assets Other Assets Investment in Sexton Company Dividends Declared Cost of Goods Sold Other Expenses (including depreciation) Income Tax Expense 100,000 795,000 90,000 90,000 $3,776,000 145,000 187.200 6,755,000 Total 305,000 375,000 1,475,000 108,000 3,000,000 1,492,000 6,755,000 136,000 290,000 1,110,000 Liabilities Accumulated Depreciation Sales Equity in Subsidiary Income Common Stock 1,200,000 1,040,000 3,776,000 Retained Earnings 1 Total