On January 1, 2017, Pepper purchased 75% of the outstanding shares of Salt for $1,275,000. At that time, Salts assets and liabilities had the following book and fair values.

SALT LTD. January 1, 2017
	Book value	Fair value
Cash	$140,000	$140,000
A/R	350,000	350,000
Inventory	345,000	345,000
Capital asset	1,000,000	1,070,000
	1,835,000	1,905,000
A/P	255,000	255,000
Common shares	300,000
R/E	1,280,000
	1,835,000
Capital assets have a 10-year remaining life.
Balance Sheet Dec 31, 2017
	Pepper	Salt
Cash	$90,000	$160,000
A/R	350,000	410,000
Inventory	420,000	564,000
Capital assets	2,075,000	950,000
Investment in salt	1,275,000	-
	$4,210,000	$2,084,000
A/P	$55,000	$377,000
Deferred income tax	75,000	60,000
Long-term debt	900,000	-
Common shares	600,000	300,000
R/E	2,580,000	1,347,000
	$4,210,000	$2,084,000
Statements of Income and Retained Earnings Year ended Dec 31, 2017
	Pepper	Salt
Sales	$3,750,000	$980,000
COGS	2,500,000	392,000
	1,250,000	588,000
Other expenses	755,000	328,000
Interest on long-term debt	90,000	-
Depreciation	70,000	50,000
Other income	(60,000)	-
	855,000	378,000
Net income before tax	395,000	210,000
Income tax	124,500	63,000
Net income after tax	270,500	147,000
Retained earnings, Jan 1, 2017	2,459,500	1,280,000
Dividends declared	(150,000)	(80,000)
Retained earnings, Dec 31, 2017	2,580,000	1,347,000

During 2017, Pepper sold goods to Salt for $130,000. These goods cost Pepper $85,000. Salt sold 60% of these goods during 2017. Also, during 2017, Salt sold goods to Pepper for $90,000, earning a gross profit of 40%. Pepper had 20% of these goods in its 2017 ending inventory. The tax rate for both companies is 30%. On December 31, 2017, Pepper determined that there was a $3,000 goodwill impairment.

Required:

Note: The calculations in part 1 are required to earn marks in part 2. Assignments submitted without supporting calculations will receive zero for this question.

Pepper accounts for Salt using the entity theory and cost methods.

1. Calculate the following for consolidated financial statements. (2 marks)
   1. a) Goodwill using fair values
   2. b) Acquisition differential, and prepare the ADA table
   3. c) Unrealized inventory profits before and after tax
   4. d) Consolidated net income and the NCI share
   5. e) Consolidated retained earnings and NCI Balance Sheet

Prepare a consolidated income statement that includes a section below net income attributing income to shareholders of Pepper and NCI shareholders. Prepare a consolidated balance sheet for 2017. Prepare these statements in good form. (18 marks)