Question
Problem 2 (40%) Trial balance data for Pepper and Salt as of December 31, 2018 follows. Pepper company acquired 100% of the shares of Salt
Problem 2 (40%)
Trial balance data for Pepper and Salt as of December 31, 2018 follows. Pepper company acquired 100% of the shares of Salt at $(500,000) when the book value of Salts net assets was equal to $350,000. At that date the fair value of Building and equipment was $20,000 more than the book value and the value of Land $50,000 above book value. Building and equipment are depreciated on a 10-year basis. At December 31, 2018, Pepper Company concluded that goodwill involved in the acquisition of Salt has been impaired and the correct carrying value was $20,000. Pepper uses the equity method to account for investments.
Pepper Company | Salt Company | |||
Dr | Cr | Dr | Cr | |
Cash | 500,000 | 99,000 | ||
Accounts receivable | 168,000 | 82,000 | ||
Inventory | 212,000 | 94,000 | ||
Investment in Salt | 0 | |||
Land | 210,000 | 91,000 | ||
Building and Equipment | 714,000 | 190,000 | ||
Cost of Goods Sold | 196,000 | 98,000 | ||
depreciation Expense | 47,000 | 7,000 | ||
Selling & administrative Expense | 223,000 | 40,000 | ||
Dividends declared | 90,000 | 24,000 | ||
Accumulated Depreciation | 444,000 | 16,000 | ||
Accounts Payable | 64,000 | 49,000 | ||
Bonds Payable | 182,000 | 50,000 | ||
Common Stock | 483,000 | 200,000 | ||
Retained Earnings | 356,300 | 150,000 | ||
Sales | 830,700 | 260,000 | ||
Income from Salt | 0 | |||
Total | 2,360,000 | 2,360,000 | 725,000 | 725,000 |
Instructions:
a) Prepare the journal entries in Pepper Company books to record the transaction related to the investment in Salt for year 2018.
( 500,000$)
b) Post the previous transactions to the ledger and find new balances at the end of year 2018.
c) Prepare the journal entries in the books of Pepper and the eliminating journal entries for the second year (2019) assuming Salt declared and paid 20,000 of cash dividends and determined a net income of 90,000.
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