Question

Pepper Company acquired all of Salt Corporation’s outstanding shares on December

    31, 2017 for $750,000 cash.  Pepper will operate Salt as a wholly owned

    subsidiary with a separate legal and accounting identity.  Although many of Salt’s

    book values approximate fair values, several of its accounts have a fair values that

    differ from book values.  In addition, Salt has internally developed assets that remain

    unrecorded on its books.  In deriving the acquisition price, Pepper assessed Salt’s

    fair and book value differences as follows:

Account	Book Values	Fair Values
Patented Technology	$155,000	$237,000
Customer List	$0	$180,000
In-process R&D	$0	$200,000
Machinery	$105,000	$95,000
Notes Payable	($50,000)	($52,000)

Required:  Complete the consolidation worksheet for Pepper and Salt at December 31, 2017.

Problem 3 Consolidation Worksheet

Use entry reference letters (S, A)

			Consolidation Entries
Accounts	Pepper	Salt	Dr.	Cr.	Consolidation Totals
Cash	35,000	29,000
Receivables	150,000	65,000
Investment in Salt	750,000
Patented Technology	400,000	155,000
Customer List	840,000
In Process R&D
Machinery (net)	320,000	105,000
Goodwill
Total Assets	2,495,000	354,000
Accounts Payable	110,000	34,000
Notes Payable	370,000	50,000
Common Stock	460,000	50,000
Additional Paid in Capital	695,000	30,000
Retained Earnings	860,000	190,000
Total Liabilities and Equity	2,495,000	354,000

Answer 1