Question

In: Accounting

Question 10 Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on...

Question 10

Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. At that date, Salt reported common stock outstanding of $1,050,000 and retained earnings of $840,000; the fair value of the noncontrolling interest was equal to 20 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for a $720,000 on December 31, 2018. Salt Co. had originally purchased the equipment for $800,000 on January 1, 2015, with a useful life of 10 years and no salvage value. At the time of the purchase, Pepper Co. estimated that the equipment still had the same remaining useful life. Both companies use straight-line depreciation.
Pepper sold land costing $132,000 to Salt Company on June 28, 2019, for $178,000.

a) Prepare Pepper’s journal entries related to intercompany sale of land and equipment for 2019.

b) Prepare the consolidation entries that related to intercompany sale of land  for 2019.

c) Prepare the consolidation entries that related to intercompany sale of equipment for 2019.

Solutions

Expert Solution

1)

Date Journal Entry Debit Credit
1 Jan, 2018 Investment in shares of salt company $1,512,000
To cash (1,050,000 + 840,000) * 80% $1,512,000
(Being shares of salt company acquired)

2) Pepper Company

Date Journal Entry Debit Credit
28 June, 2019 Cash $178,000
To Land $132,000
To gain on sale $46,000
(Being land sold to salt company)

Salt Company

Date Journal Entry Debit Credit
28 June, 2019 Land $178,000
To cash $178,000
(Being land purchased from pepper company)

Elimination of unrealised profits

Date Journal Entry Debit Credit
31 Dec, 2019 Gain on sale $46,000
To land $46,000
(Being elimination of unrealised profit from sale of land)

3) Pepper Company

Date Journal Entry Debit Credit
31 Dec, 2018 Cash $720,000
Accumulated Depreciation (800,000 / 10) * 4 $320,000
To Equipment $800,000
To gain on sale of equipment $240,000
(Being equipment sold to salt company)

Salt Company

Date Journal Entry Debit Credit
31 Dec, 2018 Equipment $720,000
To cash $720,000
(Being equipment purchased from pepper company)
31 Dec, 2019 Depreciation (720,000 / 6) $120,000
To accumulated depreciation $120,000
(Being depreciation charged on equipment)

Elimination of unrealised gain and restore the equipment to its original cost and adjusted depreciation

Date Journal Entry Debit Credit
31 Dec, 2019 Equipment $80,000
Gain on sale of equipment $240,000
To depreciation $40,000
To Accumulated depreciation $280,000

Please give me a thumbs up, I seriously need one. If you need any modification then let me know, I will do it for you. Thankyou

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1,...
Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. At that date, Salt reported common stock outstanding of $1,050,000 and retained earnings of $840,000; the fair value of the noncontrolling interest was equal to 20 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for a $720,000 on December...
Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1,...
Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. At that date, Salt reported common stock outstanding of $1,050,000 and retained earnings of $840,000; the fair value of the noncontrolling interest was equal to 20 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for a $720,000 on December...
Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1,...
Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. At that date, Salt reported common stock outstanding of $1,050,000 and retained earnings of $840,000; the fair value of the noncontrolling interest was equal to 20 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for a $720,000 on December 31, 2018. Salt Co. had originally purchased the equipment for $800,000 on January 1, 2015, with a...
Pepper Company acquired 90 percent of Salt Company's stock at underlying book value on January 1,...
Pepper Company acquired 90 percent of Salt Company's stock at underlying book value on January 1, 20X8. At that date, the fair value of the non-controlling interest was equal to 10 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for a $360,000 on December 31, 20X8. Salt Co. had originally purchased the equipment for $400,000 on January 1, 20x5, with a useful life of 10 years and no salvage value. At the time...
Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1,...
Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snoopy Company. Snoopy Company reported shares outstanding of $350,000 and retained earnings of $100,000. During 20X8, Snoopy Company reported net income of $60,000 and paid dividends of $3,000. In 20X9, Snoopy Company reported net income of $90,000 and paid dividends of $15,000. The...
Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1,...
Peanut Company acquired 75 percent of Snoopy Company's stock at underlying book value on January 1, 20X8. At that date, the fair value of the noncontrolling interest was equal to 25 percent of the book value of Snoopy Company. Snoopy Company reported shares outstanding of $350,000 and retained earnings of $100,000. During 20X8, Snoopy Company reported net income of $60,000 and paid dividends of $3,000. In 20X9, Snoopy Company reported net income of $90,000 and paid dividends of $15,000. The...
On January 1, 20X8, Potter Corporation acquired 90 percent of Shoemaker Company's voting stock, at underlying book value.
On January 1, 20X8, Potter Corporation acquired 90 percent of Shoemaker Company's voting stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Shoemaker at that date. Potter uses the fully adjusted equity method in accounting for its ownership of Shoemaker. On December 31, 20X9, the trial balances of the two companies are as follows:Potter CompanyShoemaker CorporationDebitCreditDebitCreditCurrent Assets$200,000$140,000Depreciable Assets350,000250,000Investment in Shoemaker Corp.162,000Depreciation Expense27,00010,000Other Expenses95,00060,000Dividends Declared20,00010,000Accumulated Depreciation$118,000$80,000Current Liabilities100,00080,000Long-Term Debt100,00050,000Common...
On January 1, 20X7, Pepper Company acquired 90 percent of the outstanding common stock of Salt...
On January 1, 20X7, Pepper Company acquired 90 percent of the outstanding common stock of Salt Corporation for $1,242,000. On that date, the fair value of noncontrolling interest was equal to $138,000. The entire differential was related to land held by Salt. At the date of acquisition, Salt had common stock outstanding of $520,000, additional paid-in capital of $200,000, and retained earnings of $540,000. During 20X7, Salt sold inventory to Pepper for $440,000. The inventory originally cost Salt $360,000. By...
On January 1, 20X7, Pepper Company acquired 90 percent of the outstanding common stock of Salt...
On January 1, 20X7, Pepper Company acquired 90 percent of the outstanding common stock of Salt Corporation for $1,242,000. On that date, the fair value of noncontrolling interest was equal to $138,000. The entire differential was related to land held by Salt. At the date of acquisition, Salt had common stock outstanding of $520,000, additional paid-in capital of $200,000, and retained earnings of $540,000. During 20X7, Salt sold inventory to Pepper for $440,000. The inventory originally cost Salt $360,000. By...
On January 1, 20X4, Pony Company acquired 25% of Stallion Company's common stock at underlying book...
On January 1, 20X4, Pony Company acquired 25% of Stallion Company's common stock at underlying book value of $200,000. Stallion has 80,000 shares of $10 par value, 6 percent cumulative preferred stock outstanding. No dividends are in arrears. Stallion reported net income of $270,000 for 20X4 and paid total dividends of $140,000. Pony uses the equity method to account for this investment. Based on the preceding information, what amount of investment income will Pony company report from its investment in...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT