(Note: This is the same problem as Problem 8-3, but assuming use of the complete or the partial equity method.) The accounts of Pyle Company and its subsidiary, Stern Company, are summarized below as of December 31, 2011:

Pyle Company made the following open-market purchase and sale of Stern Company common stock: January 2, 2009, purchased 51,000 shares, cost $510,000; April 1, 2011, sold 3,000 shares, proceeds, $100,000. The book value of Stern Company’s net assets on January 2, 2009, $600,000 (including retained earnings of $120,000), approximated the fair value of those net assets. Subsequent changes in book value of the net assets are attributable to earnings of Stern Company. Stern Company earns its income evenly throughout the year.

Required:
Prepare a consolidated financial statements workpaper as of December 31, 2011. Begin the income statement section of the workpaper with “Income before Equity in Subsidiary Income and Gain on Sale of Investment,” which is $172,000 and $186,000 for Pyle Company and Stern Company,respectively.

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Debits le Slern 600,000 718,400 1,180,000 320,000 Current Assets Investment in Stern Company Other Assets Dividends Declared, 11/1 668,000 60,000 $1,048,000 80,000 Total $2,578,400 Credits le Stern Liabilities Common Stock, $5 par value Other Contributed Capital 1/1 Retained Earnings Net Income 190,000 500,000 219,075 1,346,200 323,125 $2,578,400 90,000 300,000 180,000 292,000 186,000 1,048,000 Total