On January 2, 2010, Pullen Company purchased, on the open market, 135,000 shares of Souza Company common stock for $665,000. At that time, Souza Company had common stock ($2 par value) of $300,000 and retained earnings of $400,000. On May 1, 2011, Pullen Company sold 13,500 of its Souza Company shares on the open market for $91,000. Changes in Souza Company retained earnings during 2011 follow:
Retained Earnings 1/1/11................... $500,000
Net Income for 2011 (earned evenly throughout the year)...... 270,000
Dividends Declared on 11/1/11 and paid on 12/16/11........ (70,000)
Retained Earnings, 12/31/11 ................. $700,000
Pullen Company, which uses the cost method to record its investment in Souza Company, reported net income for 2011 amounting to $352,500. Any difference between implied and book values relates to subsidiary land.
A. Prepare the book entries Pullen Company will make during 2011 to account for its in vestment in Souza Company.
B. Prepare, in general journal form, the eliminating entries needed to prepare a consolidated statements workpaper on December 31, 2011.
C. Compute controlling interest in consolidated net income for 2011.
D. Prepare the workpaper entry to establish reciprocity for the 2012 consolidated statements workpaper.