On January 1, 2017, Petty Company purchased an 90% interest in the capital stock of Sally Company for $3,825,000. At that time, Sally Company had common stock of $2,200,000 and retained earnings of $620,000. Petty Company uses the cost method to record its investment in Sally Company. Differences between the fair value and the book value of the identifiable assets of Sally Company were as follows:

Fair Value in Excess of Book Value

Equipment $400,000

Land 200,000

Inventory 80,000

The book values of all other assets and liabilities of Sally Company were equal to their fair values on January 1, 2017. The equipment had a remaining life of eight years on January 1, 2017; the inventory was sold in 2017.

Sally Companys net income and dividends declared in 2017 were as follows:

Year 2017 Net Income of $400,000; Dividends Declared of $100,000

Required:

Prepare the necessary workpaper elimination entries for December 31, 2017