Question

Pepper Corporation acquired 100 percent ot Salt Company stock on January 1 2018 f for $970,000 cash Following are pre-cdosing trial balance amounts for Pepper Corporation and Salt Company as SALT CORPORATION PEPPER CORPORATION Debit Credit- Deblt Credit 1,523,000 290,000 453,000 S323,000 74,000 156,000 s Receivable Inve Investment in Salt Corp. Land Buildings Equipment Cost of Goods Sold 225,000 360,000 196,000 197,000 18,000 21,000 57,000 750,000 25,000 15,000 51,000 ciatio nse, Buildin Deprediation Expense, Equipment Selling & Administrative Expense ividends Declared 209,000 204,000 144,000 118,000 580,000 54,000 105,000 67,000 50,000 Accumulated Deprediation, Bl Accounts Payable Bonds Payable Common Stock ($1p 2,400,000 ! ditional Paid In Capital Retained Eani 480,000 380,000 516,000 980,000 223,000 6,051,000 6,051,000 Income from Salt Corp. 1,762,000 1,762,000 1.On January 1,2018, the book values of Salt's net assets and liabilities approximated fair values. 2. Pepper Corporation uses the equity method to account for lts Investment in Salt Company. 3. The general ledger numbers given above (HINT: those in boldface) include the effects of the JOURNAL ENTRIES that were recorded by Pepper at the gcquisition date and during 2018 to account for its investment in Sait Company. These boldface figures should be used as check figures for your solution.

Answer 1

a.

	Amount ($)	Notes
Fair Value of consideration	970,000
Fair value of non controlling interest	-	as there is 100% acquisition, there will be no non controlling interest
Total Fair value	970,000
Book Value of Salt Company's Net identifiable assets	970,000	common stock + Additional paid in capital + Retained earnings
Goodwill	-	Total fair value - book value of Salt's net assets

b.

	Debit	Credit	Notes
Investment in Salt Corp	970,000		At the time of acquisition
Cash		970,000	At the time of acquisition
Investment in Salt Corp	223,000		For income from Salt Corp as per equity accounting method
Income from Salt Corp		223,000	For income from Salt Corp as per equity accounting method
Cash	35,000		For Dividend received from Salt Corp as per equity accounting method
Investment in Salt Corp		35,000	For Dividend received from Salt Corp as per equity accounting method

c.

	Investment in Salt
To Cash	970,000	By Cash (Dividend)	35,000
To Income from Salt	223,000	Balance c/f	1,158,000
	1,193,000		1,193,000
	Income from Salt
Closing bal	223,000	By Investment in Salt	223,000
	223,000		223,000

d.

For consolidation all line items will be added together for Pepper and Salt. After consolidating line items, below consolidation journals need to be posted to

	Debit	Credit	Notes
Investment in Salt Company		1,158,000	Elimination of investment in subsidiary
Income from Sword Company	223,000		Elimination of subsidiary income
Dividend Declared		35,000	Elimination of subsidiary dividend
Common Stock	110,000		Elimination of Subsidiary equity
Additional paid in capital	480,000		Elimination of Subsidiary equity
Retained Earnings	380,000		Elimination of Subsidiary equity