Question

Pepper Company, which is a calendar-year-reporting company, purchased 100% of the common stock of Salt Inc. for $325,000 on 12/31/15. Pepper declared dividends of $80,000 and Salt declared dividends of $10,000 during 2015. Each company's financial statements for the year ended 12/31/15 immediately after the acquisition are as follows: Income Statement (2015) Sales Cost of sales Expenses Net Income Pepper Co. (900,000) 500,000 260,000 (140,000) Salt Co. (500,000) 250,000 202,000 (48,000) 20,000 70,000 80,000 Balance Sheet (as of 12/31/15) Cash Accounts receivable Inventory Investment in Salt Land Buildings and equipment Accumulated depreciation Total Assets 45,000 75,000 105,000 325,000 100,000 250,000 (150,000) 750,000 70,000 220,000 (60,000) 400,000 Payables and accruals Bonds payable Common stock Retained earnings Total Liabilities and Equity (80,000) (20,000) (300,000) (350,000) (750,000) (60,000) (150,000) (100,000) (90,000) (400,000) Required: a. Prepare a consolidation worksheet on the acquisition date of 12/31/15 assuming that the book values of Salt's net assets approximated fair value on the acquisition date. b. Prepare a consolidation worksheet on the acquisition date of 12/31/15 assuming that the following net assets of Salt had fair values different than book value on the acquisition date. Inventory Land Building and equipment, net Covenant-not-to-complete Bonds payable Cost 80,000 70,000 160,000 FMV 75,000 100,000 210,000 40,000 175,000 150,000

Answer 1

Consolidated Balance sheet as at 31.12.2015 65000 145000 180000 ASSETS cash [us000 + 20000] Ace Rec. [75000 + 700oo] Inventory [105000 + 75000] land [100000 + 100000] Building & Equip [looooo + 210000] Codenant-not-to-complete Goodwill 200ooo 3ooooo 40000 135000 1075000 EQUITY AND LIABILITY common stock Pepper utel 300000 Retained Earnings [wn] 440000 140000 Payables & Accruals [80000+60000] Bonds Payable [20000 + 175000] 195000 1075000

werkings 1) Percentage of Holding (100%) 2) Calculation of Goodwill/ capital Reserve cost of Investment 325000 Lessr Face value of shares of salt co.(100000) Retained Earnings of Salt Co. (90000) Goodwill = 135000 3) Calculation of Retained Earnings 140000 Pue aquisition Profit of pepper Itel = (+) Proposed Divident Pepper Ltel 80000 Salt Ltel loooo (7) General Reseane (Balfig) [ 350000 - 1400007 goooo 210000 440000