On January 1, 2010, Pasta Company purchased an 80% interest in Salsa Company for $152,000. On this date, Salsa Company reported capital stock and retained earnings of $100,000 and $90,000, respectively. During 2010, Salsa Company reported net income of $30,000 and declared a cash dividend of $35,000. At the end of 2011, Salsa Company was facing a cash shortage. Rather than distributing a cash dividend to the common stockholders, the board of directors elected to issue a 30% stock dividend. Salsa Company’s accountant recorded the stock dividend as follows:

Required:
A. Prepare a consolidated statements workpaper on December 31, 2011.
B. Prepare in general journal form the entry that would be made in the December 31, 2012, workpaper to establish reciprocity as of January 1,2012.

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Income Statement Pasta Company Salsa Company $200,000 2,000 202,000 110,000 30,000 Sales Other Revenues $370,000 15,000 385,000 180,000 80,000 Cost of Goods Sold Other Expenses $125.000 62000 Net Income Retained Earnings Pasta Company Salsa Company 1/I Retained Earnings Net Income Less: Dividends Declared 串96,000 125,000 85,000 62,000 Stock Dividend Declared (30,000) (30,000) 12/31 Retained Earnings $191,000 8117,000 Balance Sheet $171,000 148,000 94,000 300,000 $713,000 72,000 250,000 $169,000 Current Assets Investment in Salsa Company Stock Investment in Salsa Company Bonds ther Assets Totals ccounts Pavable Long-Term Bonds Payable Discount on Bonds Payable Common Stock ($10 par value) Retained Earnings 315,000 $484,000 40,000 200,000* (3,000) 130,000 117,000 200,000 191,000 Totals 8%, maturity date December 31, 2014