Reference no: EM132525348

On May 1, 2020, Peters Company purchased 80% of the common stock of Smith Company for $50,000. Additional data concerning these two companies for the years 2020 and 2021 are:

                                                                  2020                                       2021

                                            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:

Question 1: Prepare the work paper entries that would be made on a consolidated statements work paper for the years ended December 31, 2020 and 2021 for Peters Company and its subsidiary, assuming that Smith Company's income is earned evenly throughout the year.

Question 2: Calculate consolidated net income and consolidated retained earnings for 2020 and 2021.