Perez, Inc. owns 7,000 shares (70% interest) of Salata Company’s $100 par value common stock. The stock was purchased for $1,250,000 on January 2, 2010, when Salata reported a common stock balance of $1,000,000, a retained earnings balance of $400,000, and other contributed capital balance of $100,000. Any difference between implied and book value interest acquired is attributable to the under- or overvaluation of land. During 2011, Salata reported net income of $80,000. Because the company was short of liquid assets, dividends have not been paid since 2006. During 2011, however, the company declared and issued a 15% stock dividend (market price of common stock on the date of issue, $160 per share).
The retained earnings balance at the beginning of 2011 was $500,000.
A. Prepare the journal entries required in the books of Perez, Inc. during 2011.
B. Prepare in general journal form the workpaper entries necessary in the consolidated statements workpaper for the year ended December 31, 2011.
C. Prepare the workpaper entry to establish reciprocity to be made in the 2012 consolidated statements workpaper.