Pizza Company Purchased Salt Company Common Stock Through Open-Market Purchases

Essay

Pizza Company purchased Salt Company common stock through open-market purchases as follows: 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: Salt Company declared no dividends in 2015 or 2016 but did declare and pay $60,000 of dividends in 2017. 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. Prepare the journal entries Pizza Company will make during 2016 and 2017 to account for its investment in Salt Company.
B. Prepare workpaper eliminating entries necessary to prepare a consolidated statements workpaper on December 31, 2017.