Reference no: EM13503778

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:

		2010		2011
	Pet es	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:

1. 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.)
2. Calculate consolidated net income and consolidated retained earnings for 2010 and 2011.