On May 1, 2020, Peters Company purchased 80% of the common stock of Smith Company for $50,000. Additional data concerning these two companies for the years 2020 and 2021 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, 2020 and 2021 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 2020 and 2021.

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2021 2020 Smith Smith Peters Peters Common stock Other contributed capital Retained earnings, 1/1 Net income (loss) Cash dividends (11/30) $25,000 10,000 53,000 (5,000) $100,000 $25,000 10,000 10,000 45,000 2,000 $100,000 40,000 129,000 37,500 5,000 80,000 64,000 15,000