Exercise 4-8 On May 1, 2015, Peters Company purchased 80% of the common stock of

Question

Exercise 4-8 On May 1, 2015, Peters Company purchased 80% of the common stock of Smith Company-or $45,400. Additional data concerning these two companies for the years 2015 and 2016 are: 2015 2016 Peters SmithPeters Smith Common stock Other contributed capital 41,200 10,900 41,200 10,900 Retained earnings, 1/1 86,500 10,800 137,800 53,000 Net income (loss) Cash dividends (11/30)14,600 2,200 5,100 $94,800 $19,100 $94,800 $19,100 65,900 44,400 40,500 (4,600) 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.

Explanation / Answer

Part B)

The value of controlling interest in consolidated net income and consolidated retained earnings is arrived as below:

_____

Consolidated Net Income 2015 2016 Peters Company Reported Net Income 65,900 40,500 Less Dividend Income from Smith (2,200*80%) -1,760 0 Peter Company Income from Independent Operations 64,140 40,500 Add Peters Share in Net Income of Smith Company from the date of Acquisition (44,400*80%*8/12) 23,680 0 Less Peters Company Share in Net Loss in 2016 (4,600*80%) 0 -3,680 Consolidated Net Income $87,820 $36,820

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