Accounting chapter 4

1. On October 1, 2011, Packer Company purchased 90% of the common stock of Shipley Company for $290,000. Additional information for both companies for 2011 follows: PACKER SHIPLEY Common stock $300,000 $90,000 Other contributed capital 120,000 40,000 Retained Earnings, 1/1 240,000 50,000 Net Income 260,000 160,000 Dividends declared (10/31) 40,000 8,000 Any difference between implied and book value relates to Shipley’s land. Packer uses the cost method to record its investment in Shipley. Shipley Company’s income was earned evenly throughout the year. Required: A. Prepare the workpaper entries that would be made on a consolidated statements workpaper on December 31, 2011. Use the full year reporting alternative. B. Calculate the controlling interest in consolidated net income for 2011. 2. Pratt Company purchased 80% of the outstanding common stock of Selby Company on January 2, 2004, for $680,000. The composition of Selby Company’s stockholders’ equity on January 2, 2004, and December 31, 2011, was: 1/2/04 12/31/11 Common stock $540,000 $540,000 Other contributed capital 325,000 325,000 Retained earnings (deficit) (60,000) 295,000 Total stockholders’ equity $805,000 $1,160,000 During 2011, Selby Company earned $210,000 net income and declared a $60,000 dividend. Any difference between implied and book value relates to land. Pratt Company uses the cost method to record its investment in Selby Company. Required: A. Prepare any journal entries that Pratt Company would make on its books during 2011 to record the effects of its investment in Selby Company. B. Prepare, in general journal form, all workpaper entries needed for the preparation of a consolidated statements workpaper on December 31, 2011.

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