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 |
||
|
Current assets |
$100,000 |
Current liabilities |
$50,000 |
|
Depreciable fixed assets |
200,000 |
Common stock ($10 par) |
100,000 |
|
Retained earnings |
150,000 |
||
|
Total assets |
$300,000 |
Total liabilities and equity |
$300,000 |
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, 20X1:
|
Pepper |
Salt |
|
|
Current Assets |
60,000 |
130,000 |
|
Depreciable Fixed Assets |
400,000 |
200,000 |
|
Accumulated Depreciation |
106,000 |
20,000 |
|
Investment in Salt Company |
250,000 |
|
|
Current Liabilities |
60,000 |
40,000 |
|
Common Stock ($10 par) |
300,000 |
100,000 |
|
Retained Earnings, January 1, 20X2 |
200,000 |
150,000 |
|
Sales |
150,000 |
100,000 |
|
Expenses |
110,000 |
75,000 |
|
Dividend Income (from Salt Company) |
4,000 |
|
|
Dividends Declared |
5,000 |
|
|
Total |
0 |
0 |
1. If you did not solve Exercise 3 or 5, prepare a determination and distribution of excess schedule for the investment.
2. Prepare all the eliminations and adjustments that would be made on the 20X1 consolidated worksheet.
3. If you did not solve Exercise 3 or 5, prepare the 20X1 consolidated income statement and its related income distribution schedules.
4. If you did not solve Exercise 3 or 5, prepare the 20X1 consolidated balance sheet.