Interim Purchase of Stock, Full-Year Reporting Alternative, Cost Method
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:
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2010
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|
2011
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|
Pet es
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Smith
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Peters
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Smith
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Common stock
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$100,000
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$25,000
|
$100,000
|
$25,000
|
|
Other contributed capital
|
40,000
|
10,000
|
40,000
|
10,000
|
|
Retained earnings, 1/1
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80,000
|
10,000
|
129,000
|
53,000
|
|
Net income (loss)
|
64,000
|
45,000
|
37,500
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(5,000)
|
|
Cash dividends (11/30)
|
15,000
|
2,000
|
5,000
|
-0-
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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:
- 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.)
- Calculate consolidated net income and consolidated retained earnings for 2010 and 2011.