Question

On January 1, 20X0, Pepper Corporation issued 8,000 of its $10 par value shares to acquire 45 percent of the shares of Salt Manufacturing. Salt Manufacturing's balance sheet immediately before the acquisition contained the following items:

SALT MANUFACTURING Balance Sheet January 1, 20X0
	Book Value					Fair Value
Assets
Cash and Receivables		$	50,000				$	50,000
Land			83,000					93,000
Buildings and Equipment (net)			139,000					169,000
Patent			93,000					93,000
Total Assets			365,000
Liabilities & Equities
Accounts Payable		$	185,000					185,000
Common Stock			135,000
Retained Earnings			45,000
Total Liabilities & Equities		$	365,000

On the date of the stock acquisition, Pepper's shares were selling at $35, and Salt Manufacturing's buildings and equipment had a remaining economic life of 5 years. The amount of the differential assigned to goodwill is not impaired.

In the two years following the stock acquisition, Salt Manufacturing reported net income of $87,000 and $57,000 and paid dividends of $22,000 and $47,000, respectively. Pepper used the equity method in accounting for its ownership of Salt Manufacturing.

Required:
a. Prepare the entry recorded by Pepper Corporation at the time of acquisition. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

b-1. Prepare the journal entries recorded by Pepper during 20X0 related to its investment in Salt Manufacturing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

b-2. Prepare the journal entries recorded by Pepper during 20X1 related to its investment in Salt Manufacturing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

c. What balance will be reported in Pepper’s investment account on December 31, 20X1?
  

Answer 1