On January 1, Year 8, Salt Company's shareholders' equity was as follows:

Pepper Company held 90% of the 4,000 outstanding shares of Salt Company on January 1, Year 8, and its investment in Salt Company account had a balance of $126,000 on that date. Pepper accounts for its investment by the equity method. Any acquisition differential was allocated to unrecorded trademarks with a remaining useful life on January 1, Year 8, of 10 years.

The following events took place subsequent to January 1, Year 8:

• On July 1, Year 8, Pepper sold 720 of the Salt Company shares it held at a price of $30 per share.
• During Year 8, Salt reported a net income of $20,000 (earned equally throughout the year) and declared dividends of $5,000 on December 31.
• During Year 9, Salt reported a net income of $28,000 and paid dividends of $8,000 on November 15.
• On December 31, Year 9, Salt issued an additional 500 shares to third parties at a price of $46 per share.

Required:

1. Prepare schedules, in good form, for the following in Pepper's books:

i."Investment in Salt" Account on June 30, Year 8 before the sale of 720 Salt shares. (3 Marks)

ii.Gain or loss on the sale of 720 Salt Shares (2 Marks)

iii."Investment in Salt" Account on December 31, Year 9 before Salt's share issue of 500 shares to third parties. (8 Marks)

iv.Gain or loss to Pepper as a result of Salt's share issue. (3 Marks)

1. What would the ending balance in the "Investment is Salt" Account in Pepper's books as at December 31, Year 9 after adjusting for all the events described? (1 Mark)

1. Prepare journal entries in Pepper's books for the following:

i.Sale of 720 Salt Shares on July 1, Year 8 (2 Marks)

ii.Adjustment to "Investment in Salt" Account as a result of Salt's share issue on December 31, Year 9 (1 Mark)