On January 1, 2009, Plenty Company purchased a 70% interest in the common stock of Set Company for $650,000, an amount $20,000 in excess of the book value of equity acquired. The excess relates to the understatement of Set Company’s land holdings. Excerpts from both company’s financial statements for the year ended December 31, 2009, follow:

Set Company's stockholders' equity is composed of common stock and retained earnings only. Both companies file separate tax returns, and the expected tax rate is 40%. The capital gains tax rate is 20%, and there is an 80% dividend exclusion rate.

Required:
A. Prepare the entry(s) needed at the end of 2009 to report the income tax consequences of undistributed income assuming the use of the cost method, under each of the following assumptions. Indicate whether the entry is recorded on the books of Set, Plenty, or work sheet only.
(1) Plenty expects the undistributed income will be realized in the form of future dividends.
(2) Plenty expects the undistributed income will be realized only when the stock is sold, in the form of capital gains.
B. Prepare the entry(s) needed at the end of 2009 to report the income tax consequences of undistributed income assuming the use of the partial equity method, under each of the following assumptions. Indicate whether the entry is recorded on the books of Set, Plenty, or worksheet only.
(1) Plenty expects the undistributed income will be realized in the form of future dividends.
(2) Plenty expects the undistributed income will be realized only when the stock is sold, in the form of capitalgains.

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Set Company Plenty Company 1/1/09 retained earnings Income from independent operations Dividends declared 190,000 132,000 50,000) 880,000 420,000 (88,000)