Question:
Pizza Company purchased Salt Company common stock through open-market purchases as follows:
Date 1/1/12 1/1/13 1/1/14
Acquired Shares
1,500 3,300 6,600
Cost $ 50,00 $ 90,000 $250,000
Salt Company had 12,000 shares of $20 par value common stock outstanding during the entire period. Salt had the following retained earnings balances on the relevant dates:
January 1, 2012 January 1, 2013 January 1, 2014 December 31, 2014
$
90,000 30,000 150,000 300,000
Salt Company declared no dividends in 2012 or 2013 but did declare $60,000 of dividends in 2014. Any difference between cost and book value is assigned to subsidiary land. Pizza uses the equity method to account for its investment in Salt.
Required:
A. Evaluate the journal entries Pizza Company will make during 2013 and 2014 to account for its investment in Salt Company.
B. Evaluate workpaper eliminating entries necessary to evaluate a consolidated statements workpaper on December 31, 2014.