Question

Illustration #3 Pepper Company, which is a calendar-year-reporting company, purchased 100% of the common stock of Salt Inc. for $325,000 on 12/31/17. On the acquisition date, the following net assets of Salt had fair values different than book value: Cost FMV Inventory 80,000 75,000 Turnover 6 times per year Land 70,000 100,000 Building and equipment 220,000 210,000 10 year life Accumulated depreciation (60,000) Covenant-not-to-complete 40,000 4 year life Bonds payable 150,000 175,000 10 years to maturity Each company's financial statements for the year ended 12/31/17 immediately after the acquisition are as follows: Income Statement (2017) 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) Balance Sheet (as of 12/31/17) Cash Accounts receivable Inventory Investment in Salt Land Buildings and equipment, net 20,000 70,000 80,000 45,000 75,000 105,000 325,000 100,000 200,000 (100,000) 750,000 70,000 220,000 (60,000) 400,000 Total Assets Payables and accruals Bonds payable Common stock Retained earnings Total Liab, and Equity (80,000) (20,000) (300,000) (350,000) (750,000) (60,000) (150,000) (100,000) (90,000) (400,000) Required: a. Present the journal entries made by Pepper during 2018 to reflect the equity method of accounting. b. Complete the "Illustration #3” worksheet to show the consolidation on 12/31/18. Pepper is using the equity method to account for their investment in Salt.
only need part b worksheet

Answer 1

Consolidation date 12/31/18			Consolidation entries
Income statement (2018)	Pepper Co	Salt Co	Debit	Credit	Consolidated
Sales	-950000	-600000			-1550000
Cost of sales	520000	300000			820000
Depreciation	30000	22000			52000
Interest Expense	7000	15000			22000
Other expenses	338000	203000			541000
Equity income	-52500		35000		-17500
Net Income	-107500	-60000			-132500
Statement of retained earnings
Balances, beginning 1/1/18	-350000	-90000			-440000
Net income	-107500	-60000			-132500
Dividends declared	80000	35000		-35000	80000
Balances, 12/31/18	-377500	-115000			-492500
Balance sheet (as of 12/31/18)
Cash	70000	35000			105000
Accounts Receivable	95000	60000			155000
Inventory	115000	120000			235000
Investment in Salt Co	342500			-342500	0
Land	100000	70000			170000
Buildings and Equipment	150000	220000			370000
Accumulated depreciation	-110000	-65000			-175000
Covenant not to compete			40000		40000
Goodwill			202500		202500
Total Assets	762500	440000			1102500
Payables and accruals	-65000	-75000			-140000
Bonds payable	-20000	-150000			-170000
Common stock	-300000	-100000	100000		-300000
Retained earnings	-377500	-115000			-492500
Total liabilities and equity	-762500	-440000			-1102500