EXERCISE 4-2 Workpaper Eliminating Entries, Cost Method LO 5

Park Company purchased 90% of the stock of Salt Company on January 1, 2024, for $465,000, an amount equal to $15,000 in excess of the book value of equity acquired. This excess payment relates to an undervaluation of Salt Company's land. On the date of purchase, Salt Company's retained earnings balance was $50,000. The remainder of the stockholders' equity consists of no-par common stock. During 2028, Salt Company declared dividends in the amount of $10,000, and reported net income of $40,000. The retained earnings balance of Salt Company on December 31, 2027, was $160,000. Park Company uses the cost method to record its investment.

Required: Provide in general journal form the workpaper entries that would be made in the preparation of a consolidated statements workpaper on December 31, 2028.

EXERCISE 4-8 Interim Purchase of Stock, Cost Method LO 6

On May 1, 2025, Peters Company purchased 80% of the common stock of Smith Company for $50,000. Additional data concerning these two companies for the years 2025 and 2026 are:

2025 2026

Peters Smith Peters Smith

Common stock $100,000 $25,000 $100,000 $25,000

Other contributed capital 40,000 10,000 40,000 10,000

Retained earnings, 1/1 80,000 10,000 129,000 53,000

Net income (loss) 64,000 45,000 37,500 (5,000)

Cash dividends (11/30) 15,000 2,000 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:

Provide the workpaper entries that would be made on a consolidated statements workpaper for the years ended December 31, 2025 and 2026 for Peters Company and its subsidiary, assuming that Smith Company's income is earned evenly throughout the year. Calculate consolidated net income and consolidated retained earnings for 2025 and 2026.

PROBLEM 4-4 Consolidated Workpaper, Partially Owned Subsidiary, Cost Method LO 5

Place Company purchased 92% of the common stock of Shaw, Inc. on January 1, 2022, for $400,000. Trial balances at the end of 2022 for the companies were:

Place Shaw

Cash $ 80,350 $87,000

Accounts and Notes Receivable 200,000 210,000

Inventory, 1/1 70,000 50,000

Investment in Shaw, Inc. 400,000 0

Plant Assets 300,000 200,000

Dividends Declared 35,000 22,000

Purchases 240,000 150,000

Selling Expenses 28,000 20,000

Other Expenses 15,000 13,000

$1,368,350 $752,000

Accounts and Notes Payable $ 99,110 $38,000

Other Liabilities 45,000 15,000

Common Stock, $10 par 150,000 100,000

Other Contributed Capital 279,000 149,000

Retained Earnings, 1/1 225,000 170,000

Sales 550,000 280,000

Dividend Income 20,240 0

$1,368,350 $752,000

Inventory balances on December 31, 2022, were $25,000 for Place and $15,000 for Shaw, Inc. Shaw's accounts and notes payable contain a $15,000 note payable to Place.

Required: Provide a workpaper for the preparation of consolidated financial statements on December 31, 2022. The difference between book value of equity acquired and the value implied by the purchase price relates to subsidiary land, which is included in plant assets.