On May 1, 2015, Peters Company purchased 80% of the common stock of Smith Compan

Question

On May 1, 2015, Peters Company purchased 80% of the common stock of Smith Company for $52,900. Additional data concerning these two companies for the years 2015 and 2016 are: 2015 2016 Peters Smith Peters Smith Common stock $104,500 $24,300 $104,500 $24,300 Other contributed capital 37,300 10,200 37,300 10,200 Retained earnings, 1/1 81,400 10,300 124,900 50,500 Net income (loss) 58,300 42,300 36,900 (4,800 ) Cash dividends (11/30) 14,800 2,100 5,100 —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. /Your answer is partially correct. Try again Prepare the workpaper entries that would be made on a consolidated statements workpaper for the years ended December 31, 2015 and 2016 for Peters Company and its subsidiary, assuming that Smith Company's income is earned evenly throughout the year. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit 2015 Dividend Income 1680 Dividends Declared Subsidiary Company 1680 (To record dividend income) Common Stock Subsidiary Company 24,300 Other Contributed Capital-Subsidiary Company 10,200 Retained Earnings - Subsidiary Company 10,300 Difference between Implied and Book Value 7225 Subsidiary Income Purchased 14100 Investment in Subsidiary 52,900 Noncontrolling Interest 13225 To eliminate investment in subsidiary and create noncontrolling intcrest) Land 7225 Difference between Implied and Book Value 7225 (To climinate excess of the book value of equity acquired.) 21 Investment in Subsidiary 20880 Retained Earnings Parent company 20880 (To establish reciprocity) Common Stock Subsidiary Company 24,300 Other Contributed Capital-Subsidiary Company 10,200 Retained Earnings - Subsidiary Company 50,500 Land 7225 Investment in Subsidiary Noncontrolling Interest (To eliminate investment in suhsidiary and create noncontrolling intcrest)

Explanation / Answer

Peter's Company acquired 80% of Smith's Company. Hence, all the assets and liabilities of Smith are divide into two components in the ratio of 80:20 between Peter Company and Smith Company respectively.

It also includes acquiring the losses of the subsidiary and providing for the losses of the subsidiary company by the holding company. Hence the loss of $ 4800 should also be included.

The correct answer will be 24300+10200+50500+7225-4800 = 87425 to be divided between Peter and Smith in the ratio of 80:20. Thus, the answer will be 69940 and 17485.

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