On January 1, 1990, Larger Company purchased \(90 \%\) of Smaller Company's outstanding stock at \(\$ 24\) per share. On that date, Larger Company had retained earnings of \(\$ 350,500\). Smaller Company had retained earnings of \(\$ 225,000\), and had outstanding 20,000 shares of \(\$ 10\) par, common stock, originally issued at par.

\section*{Part 1.}

\section*{Required}

1. Give the elimination entry to be used on a work sheet for a consolidated balance sheet dated January 1, 1990.

2. Determine the amount of consolidated retained earnings that should be shown on a consolidated balance sheet dated January 1, 1990.

Part 2. During the year ended December 31, 1990, Larger Company paid cash dividends of \(\$ 45,000\) and earned net income of \(\$ 90,000\) excluding earnings from its investment in Smaller Company. Smaller Company earned net income of \(\$ 45,000\) and paid dividends of \(\$ 25,000\). Except for Larger Company's Retained Earnings account and the Investment in Smaller Company account, the balance sheet accounts for the two companies on December 31, 1990, are as follows:

Larger Company loaned \(\$ 45,000\) to Smaller Company during 1990, for which Smaller Company signed a note. On December 31, 1990, the note had not been repaid.
\section*{Required}
1. Calculate the December 31, 1990, balances in Larger Company's Investment in Smaller Company account and Retained Earnings account.
2. Complete a work sheet to consolidate the balance sheets of the two companies.

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Larger Smaller Company Company Cash Notes receivable. Merchandise Building (net) Land Total assets Accounts payable . $140,200 $106,800 45.000 220,800 175,300 284,250 240,000 186,000 183,500 Investment in Smaller Company ? $ ? S705,600 $215,250 $215,600 Note payable Common stock 45,000 675,000 200,000 Retained earnings ? 245,000 Total liabilities and stockholders' equity. $ ? $705,600