EXEKCISE73) Cost method, first year, eliminations, statements. (Note: Read caref

Question

EXEKCISE73) Cost method, first year, eliminations, statements. (Note: Read carefully. This is not the same as Exercise 3 or 5.) Pepper Company purchased an 80% interest in Salt Company for $250,000 in cash on January 1, 20X1, when Salt Company had the following balance sheet Assets Liabilities and Equity .50,000 00,000 150,000 $300,000 $100,000 200,000 Current liabilities . .. _ . . . Common stock($10 par) Current assets Depreciable fixed 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 Company uses the cost method to record its investment in Salt Company The following trial balances of the two companies were prepared on December 31, 2 0X1: Pe Salt 60,000 400,000 130,000 200,000 06,000 20,000) Current Assets . .. 250,000 (60,000 (40,000] 300,000 (100,000) (200,000) (150,000) 50,000 (100,000) 75,000 Sales... xpenses 110,000 (4,000) 5,000 Total... 1. If you did not solve Exercise 3 or 5, prepare a determination and distribution of excess sche- 2. Prepare all the eliminations and adjustments that would be made on the 20X1 consolidated 3. If you did not solve Exercise 3 or 5, prepare the 20X1 consolidated income statement and its 4. If you did not solve Exercise 3 or 5, prepare the 20X1 consolidated balance sheet. dule for the investment. worksheet. related income distribution schedules.

Explanation / Answer

Solution:

1) Preparing a Determination and Distribution of Excess Schedule for the Investment:

2) Preparing all the Elimination and Adjustments that would be Made on the 20X1 Consolidated Worksheet:

3) Preparing the 20X1 Consolidated Income Statement and its Related Distribution Schedules:

Pepper Company and Salt Company

Consolidated Income Statement

For Year Ended December 31, 20X1

4) Preparing the 20X1 Consolidated Balance Sheet:

Pepper Company and Salt Company

Consolidated Balance Sheet

December 31, 20X1

Determination and Distribution of Excess Schedule Price paid for investment $250,000 Less book value of interest acquired: Common stock ($10 par) $100,000 Paid-in capital in excess of par - Retained earnings $150,000 Total equity $250,000 Interest acquired 80% $200,000 Excess of cost over book value (debit) $50,000 Existing goodwill - Excess available $50,000 Adjustments: Amortization Depreciable fixed assets $50,000 10 Debit $5,000 Goodwill - Extraordinary gain - Total adjustments $50,000

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