(SOLVED) On January 1 2014 Paxton Company purchased

a 70 interest
On January 1, 2014, Paxton Company purchased a 70% interest in Sagon Company for
$1,300,000, at which time Sagon Company had retained earnings of $500,000 and capital stock
of $1,000,000. On January 1, 2014, the fair value of the assets and liabilities of Sagon
Company was equal to their book value
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purchased-a-70-interest
On January 1, 2014, Paxton Company purchased a 70% interest in Sagon Company for
$1,300,000, at which time Sagon Company had retained earnings of $500,000 and capital stock
of $1,000,000. On January 1, 2014, the fair value of the assets and liabilities of Sagon
Company was equal to their book value except for bonds payable. Sagon Company had
outstanding a $1,000,000 issue of 6% bonds that were issued at par and that mature on
January 1, 2019. Interest on the bonds is payable annually, and the yield rate on similar bonds
on January 1, 2014, is 10%. Paxton Company reported net income from independent
operations of $300,000 in 2014 and $250,000 in 2015. Sagon Company reported net income of
$100,000 in 2014 and $120,000 in 2015. Neither company paid or declared dividends in 2014 or
2015. Paxton uses the partial equity method to account for its investment in Santos.Despite two
profitable years, changes in the market during 2015 for Sagon's product line have caused
Paxton to be concerned about the future profitability of the unit. The following data are collected
to test for goodwill impairment at 12/31/15. (No goodwill impairment has been recorded on the
parent's books.)Paxton chose to measure goodwill impairment using the present value of future
cash flows to estimate the fair value of the reporting unit (Sagon).Required:A. Prepare in
general journal form the entries necessary in the consolidated statements workpapers for the
years ended December 31, 2014, and December 31, 2015. Hint: You may wish to refer back to
the section entitled Goodwill Impairment Test in Chapter 2.B. Prepare in good form a schedule
or t-account showing the calculation of the controlling and non-controlling interest in
consolidated net income for the years ended December 31, 2014, and December 31, 2015.View
Solution:
On January 1 2014 Paxton Company purchased a 70 interest
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purchased-a-70-interest

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