Pepper Company, which is a calendar-year-reporting company, purchased 80% of the common stock of Salt Inc. for $260,000 on 12/31/19. The total fair value of the controlling and non-controlling interests in the subsidiary is $325,000. On the acquisition date, the following net assets of Salt had fair values different than book value: Cost FMV 80,000 70,000 220,000 (60,000) 75,000 Turnover 6 times per year 100,000 210,000 Inventory Land Building and equipment Accumulated depreciation Covenant-not-to-complete Bonds payable 10 year life 40,000 175,000 4 year life 10 years to maturity 150,000 During the year ending December 31, 2020, there were no transactions involving the stock of Salt Company. Required: a. Prepare the journal entries made by Pepper Co. to reflect the acquisition of Salt on 12/31/19 and the application of the equity method of accounting during the year ending 12/31/20. b. Complete the "Illustration #5" worksheet to show the consolidation on 12/31/20. Illustration #5 Consolidation Date 12/31/20 Income Statement ending 12/31/20 Consolidation Entries Pepper Co. Salt Co. Debit Credit Consolidated Sales (950,000) (600,000) Cost of sales Depreciation expense 520,000 300,000 30,000 22,000 Interest expense 7,000 15,000 Other expenses 338,000 203,000 Income from Salt (42,000) Net Income (97,000) (60,000) Statement of Retained Earnings Balances, beginning 1/1/20 (350,000) (97,000) (90,000) (60,000) Net income Dividends declared 80,000 35,000 Balances, 12/31/20 (367,000)| (115,000) Balance Sheet as of 12/31/20 Cash 128,000 52,000 Accounts receivable 95,000 60,000 Inventory Investment in Salt 115,000 120,000 274,000 Land 100,000 70,000 Buildings and equipment Accumulated depreciation 150,000 220,000 (110,000) (82,000) Total Assets 752,000 440,000 Payables and accruals Bonds payable (65,000) (20,000) (40,000) (260,000) (367,000) (75,000) (150,000) Common stock Additional paid-in capital Retained earnings (20,000) (80,000) (115,000) Total Liab. and Equity (752,000) (440,000) Pepper Company, which is a calendar-year-reporting company, purchased 80% of the common stock of Salt Inc. for $260,000 on 12/31/19. The total fair value of the controlling and non-controlling interests in the subsidiary is $325,000. On the acquisition date, the following net assets of Salt had fair values different than book value: Cost FMV 80,000 70,000 220,000 (60,000) 75,000 Turnover 6 times per year 100,000 210,000 Inventory Land Building and equipment Accumulated depreciation Covenant-not-to-complete Bonds payable 10 year life 40,000 175,000 4 year life 10 years to maturity 150,000 During the year ending December 31, 2020, there were no transactions involving the stock of Salt Company. Required: a. Prepare the journal entries made by Pepper Co. to reflect the acquisition of Salt on 12/31/19 and the application of the equity method of accounting during the year ending 12/31/20. b. Complete the "Illustration #5" worksheet to show the consolidation on 12/31/20. Illustration #5 Consolidation Date 12/31/20 Income Statement ending 12/31/20 Consolidation Entries Pepper Co. Salt Co. Debit Credit Consolidated Sales (950,000) (600,000) Cost of sales Depreciation expense 520,000 300,000 30,000 22,000 Interest expense 7,000 15,000 Other expenses 338,000 203,000 Income from Salt (42,000) Net Income (97,000) (60,000) Statement of Retained Earnings Balances, beginning 1/1/20 (350,000) (97,000) (90,000) (60,000) Net income Dividends declared 80,000 35,000 Balances, 12/31/20 (367,000)| (115,000) Balance Sheet as of 12/31/20 Cash 128,000 52,000 Accounts receivable 95,000 60,000 Inventory Investment in Salt 115,000 120,000 274,000 Land 100,000 70,000 Buildings and equipment Accumulated depreciation 150,000 220,000 (110,000) (82,000) Total Assets 752,000 440,000 Payables and accruals Bonds payable (65,000) (20,000) (40,000) (260,000) (367,000) (75,000) (150,000) Common stock Additional paid-in capital Retained earnings (20,000) (80,000) (115,000) Total Liab. and Equity (752,000) (440,000) Pepper Company, which is a calendar-year-reporting company, purchased 80% of the common stock of Salt Inc. for $260,000 on 12/31/19. The total fair value of the controlling and non-controlling interests in the subsidiary is $325,000. On the acquisition date, the following net assets of Salt had fair values different than book value: Cost FMV 80,000 70,000 220,000 (60,000) 75,000 Turnover 6 times per year 100,000 210,000 Inventory Land Building and equipment Accumulated depreciation Covenant-not-to-complete Bonds payable 10 year life 40,000 175,000 4 year life 10 years to maturity 150,000 During the year ending December 31, 2020, there were no transactions involving the stock of Salt Company. Required: a. Prepare the journal entries made by Pepper Co. to reflect the acquisition of Salt on 12/31/19 and the application of the equity method of accounting during the year ending 12/31/20. b. Complete the "Illustration #5" worksheet to show the consolidation on 12/31/20. Illustration #5 Consolidation Date 12/31/20 Income Statement ending 12/31/20 Consolidation Entries Pepper Co. Salt Co. Debit Credit Consolidated Sales (950,000) (600,000) Cost of sales Depreciation expense 520,000 300,000 30,000 22,000 Interest expense 7,000 15,000 Other expenses 338,000 203,000 Income from Salt (42,000) Net Income (97,000) (60,000) Statement of Retained Earnings Balances, beginning 1/1/20 (350,000) (97,000) (90,000) (60,000) Net income Dividends declared 80,000 35,000 Balances, 12/31/20 (367,000)| (115,000) Balance Sheet as of 12/31/20 Cash 128,000 52,000 Accounts receivable 95,000 60,000 Inventory Investment in Salt 115,000 120,000 274,000 Land 100,000 70,000 Buildings and equipment Accumulated depreciation 150,000 220,000 (110,000) (82,000) Total Assets 752,000 440,000 Payables and accruals Bonds payable (65,000) (20,000) (40,000) (260,000) (367,000) (75,000) (150,000) Common stock Additional paid-in capital Retained earnings (20,000) (80,000) (115,000) Total Liab. and Equity (752,000) (440,000)