Question

On January 1, 2015, Pepper Company purchases 80% of the common stock of Salty Company for $270,000.

On this date, Salty has total owners' equity of $300,000.

The excess of cost over book value is due to goodwill.

For tax purposes, goodwill is amortized over 15 years.

During 2015, Pepper appropriately accounts for its investment in Salty using the simple equity method.

During 2015, Pepper sells merchandise to Salty for $50,000, of which $10,000 is held by Salty on December 31, 2015.

Pepper's gross profit on sales is 40%.

During 2015, Salty sells some land to Pepper at a gain of $10,000.

Pepper still holds the land at year-end.

Pepper and Salty qualify as an affiliated group for tax purposes and, thus, will file a consolidated tax return.

Assume a 30% corporate income tax rate.

The following trial balances are prepared on December 31, 2015:

	Pepper Company	Salty Company
Inventory, December 31	100,000	50,000
Other Current Assets	198,000	200,000
Investment in Salty Company	302,000
Land	240,000	100,000
Buildings and Equipment	300,000	200,000
Accumulated Depreciation	(80,000)	(60,000)
Current Liabilities	(150,000)	(50,000)
Long-Term Liabilities	(200,000)	(100,000)
Common Stock	(100,000)	(50,000)
Paid-In Capital in Excess of Par	(180,000)	(100,000)
Retained Earnings	(320,000)	(150,000)
Sales	(500,000)	(300,000)
Cost of Goods Sold	300,000	180,000
Operating Expenses	100,000	80,000
Subsidiary Income	(40,000)
Gain on Sale of Land		(10,000)
Dividends Declared	30,000	10,000
Totals	0	0

Required:

Prepare a consolidated worksheet for Pepper Company and subsidiary Salty Company for the year ended December 31, 2015.

Include the determination and distribution of excess schedule and the income distribution schedules.

Answer 1