On May 1, 2025, Peters Company purchased 80% of the common stock of Smith Company for $50,000. Additional data concerning these two companies for the years 2025 and 2026 are:

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:
A. Prepare the workpaper entries that would be made on a consolidated statements workpaper for the years ended December 31, 2025 and 2026 for Peters Company and its subsidiary, assuming that Smith Company’s income is earned evenly throughout the year.
B. Calculate consolidated net income and consolidated retained earnings for 2025 and 2026.

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Common stock Other contributed capital Retained earnings, 1/1 Net income (loss) Cash dividends (11/30) Peters $100,000 40,000 80,000 64,000 15,000 2025 Smith $25,000 10,000 10,000 45,000 2,000 Peters $100,000 40,000 129,000 37,500 5,000 2026 Smith $25,000 10,000 53,000 (5,000)