Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On January 1, 20X0, Pepper Corporation issued 9,000 of its $10 par value shares to acquire 45 percent of the shares of Salt Manufacturing. Salt

On January 1, 20X0, Pepper Corporation issued 9,000 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 84,000 94,000
Buildings and Equipment (net) 136,000 166,000
Patent 94,000 94,000
Total Assets 349,000
Liabilities & Equities
Accounts Payable $ 161,000 161,000
Common Stock 139,000
Retained Earnings 49,000
Total Liabilities & Equities $ 349,000

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 10 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 $29,000 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.)

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.)

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.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Cost Accounting A Managerial Emphasis

Authors: Charles T. Horngren, Foster George, Srikand M. Datar, Maureen P. Gowing

5th Canadian Edition

0135004934, 978-0135004937

More Books

Students also viewed these Accounting questions

Question

Does it avoid use of underlining?

Answered: 1 week ago