Jones Company acquired an 80% interest in Smith Company at the beginning of Year 1 for $161,000. The book value of the stock purchased was $140,000....

Jones Company acquired an 80% interest in

Smith Company at the beginning of Year 1 for $161,000.

The book value of the stock purchased was $140,000. In

negotiating the purchase price, it was agreed that the

market value was justified in exceeding the book value

because of the strong foothold in the market established

by a newly launched product, Instant Coffee. Competitive

brands are now coming on the market, however, and management

believes that the initial advantage gained by

Smith's new product will be dissipated in the next five

years. Any goodwill should be amortized over this period.

During Year 1, Jones sold to Smith merchandise for

$85,000 that cost $10,000, and 20% of these goods are still

in Smith's ending inventory.

Jones uses the cost method to account for its investment

in Smith. Minority interest will reflect the legal method.

Required:

a. Complete the accompanying work sheet, supplying

notes to explain the entries.

b. Prepare a statement of consolidated net income showing

minority interest.