Question
Item 11 On January 1, 20X0, Pepper Corporation issued 7,000 of its $10 par value shares to acquire 45 percent of the shares of Salt
Item 11
On January 1, 20X0, Pepper Corporation issued 7,000 of its $10 par value shares to acquire 45 percent of the shares of Salt Manufacturing. Salt Manufacturing's balance sheet immediately before the acquisition contained the following items:
SALT MANUFACTURING Balance Sheet January 1, 20X0 | |||||||||
Book Value | Fair Value | ||||||||
Assets | |||||||||
Cash and Receivables | $ | 35,000 | $ | 35,000 | |||||
Land | 83,000 | 93,000 | |||||||
Buildings and Equipment (net) | 132,000 | 162,000 | |||||||
Patent | 93,000 | 93,000 | |||||||
Total Assets | 343,000 | ||||||||
Liabilities & Equities | |||||||||
Accounts Payable | $ | 143,000 | 143,000 | ||||||
Common Stock | 145,000 | ||||||||
Retained Earnings | 55,000 | ||||||||
Total Liabilities & Equities | $ | 343,000 | |||||||
On the date of the stock acquisition, Pepper's shares were selling at $35, and Salt Manufacturing's buildings and equipment had a remaining economic life of 5 years. The amount of the differential assigned to goodwill is not impaired. In the two years following the stock acquisition, Salt Manufacturing reported net income of $89,000 and $59,000 and paid dividends of $24,000 and $49,000, respectively. Pepper used the equity method in accounting for its ownership of Salt Manufacturing. Required: a. Prepare the entry recorded by Pepper Corporation at the time of acquisition. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
A
Record the acquisition of Salt Manufacturing.
b-1. Prepare the journal entries recorded by Pepper during 20X0 related to its investment in Salt Manufacturing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
-
A
Record the acquisition of Salt Manufacturing.
-
B
Record the dividends received from Salt Manufacturing.
-
C
Record the equity-method income for period.
-
D
Record the entry to amortize the differential assigned to buildings and equipment.
b-2. Prepare the journal entries recorded by Pepper during 20X1 related to its investment in Salt Manufacturing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
-
A
Record the dividends received from Salt Manufacturing.
-
B
Record the equity-method income for period.
-
C
Record the entry to amortize the differential assigned to buildings and equipment.
c. What balance will be reported in Peppers investment account on December 31, 20X1?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started