kiexcise S04) Sophisticated equity method, first year, eliminations, state- ment

Question

kiexcise S04) Sophisticated equity method, first year, eliminations, state- ments. (Note: Read carefully. This is not the same as Exercise 3.) Pepper Company purchased an 80% interest in Salt Company for $250,000 on January 1, 20X1, when Salt Company had the following balance sheet: Assets Liabilities and Equi $50,000 100,000 150,000 $300,000 Current assets _ . . . Depreciable fixed assets . Retaine Total assets. .. $300,000 Total liabilities and equity . _ _ _ _ . . .. Any excess of the price paid over book value is attributable only to the fixed assets, which have a 10-year remaining life. Pepper uses the sophisticated equity method to record the invest- ment in Salt Compan The following trial balances of the two companies were prepared on December 31, 20X1: Pe Salt 130,000 200,000 06,000 20,000) 60,000 Depreciable Fixed Assets . 400,000 261,000 (60,000 (40,000 (300,000)100,000) . (200,000) 150,000) 150,000) 100,000) 75,000 Common Stock Sales 110,000 (15,000) xpenses . Dividends Declared... 5,000 0 Total 1. If you did not solve Exercise 3, prepare a determination and distribution of excess schedul 2. Prepare all the climinations and adjustments that would be made on the 20X1 consolidate 3. If you did not solve Exercise 3, prepare the 20X1 consolidated income statement and it 4. If you did not solve Exercise 3, prepare the 20X1 consolidated balance sheet. for the investment. worksheet related income distribution schedule.

Explanation / Answer

Part 1)

The determination and distribution of excess schedule is prepared as below:

_____

Part 2)

The eliminations and adjustments are given as follows:

_____

Part 3)

The consolidated income statement and related income distribution schedule is provided as below:

____

____

_____

Part 4)

The consolidated balance sheet is prepared as follows:

Determination and Distribution of Excess Schedule Price Paid for Investment 250,000 Less Book Value of Interest Acquired: Common Stock 100,000 Paid in Capital in Excess of Par 0 Retained Earnings 150,000 Total Value of Equity 250,000 Total Value of Interest Acquired (250,000*80%) 200,000 Excess of Cost over Book Value (Debit) [250,000 - 200,000] 50,000 Amortization Existing Goodwill 0 Excess Available 50,000 Adjustments: Depreciable Fixed Assets 50,000 5,000 (50,000/10) Goodwill 0 Extraordinary Gain 0 Total Adjustments $50,000

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