On May 1, 2010, Peters Company purchased 80 of the common stock of Smith Company for 50,000 Additional data concerning these two companies for the years 2010 and 2011 are Any difference between book value and the value implied by the purchase price relates to Smith Companys land Peters Company uses...

Work paper Entries and Consolidate Net Income Cost Method Part A Work paper Entries 20 10 Dividend Income 80 x 2000 1600 Dividends Declared Smith Company 1600 Common Stock Smith 25000 Other Contribute ...

On May 1, 2010, Peters Company purchased 80% of the common stock of Smith Company for 50,000.

Question:

On May 1, 2010, Peters Company purchased 80% of the common stock of Smith Company for 50,000. Additional data concerning these two companies for the years 2010 and 2011 are:

2010 2011 Peters Smith Peters Smith $100,000 40,000 80,000 $25,000 10,000 10,000 $100,000 40,000 129,000 $25,000 10,000 53,000 (5,000) Common stock Other contributed capital Retained earnings, 1/1 Net income (loss) Cash dividends (11/30) 64,000 15,000 45,000 2,000 37,500 5,000 -0-

Any difference between book value and the value implied by the purchase price relates to Smith Company’s land. Peters Company uses the cost method to record its investment.

Required:

A. Prepare the workpaper entries that would be made on a consolidated statements workpaper for the years ended December 31, 2010 and 2011 for Peters Company and its subsidiary, assuming that Smith Company’s income is earned evenly throughout the year.

(Use the full-year reporting alternative.)

B. Calculate consolidated net income and consolidated retained earnings for 2010 and 2011.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...