On January 1, 20X0, Pepper Corporation issued 6,000 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:

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 10 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 $80,000 and $50,000 and paid dividends of $20,000 and $40,000, respectively. Pepper used the equity method in accounting for its ownership of Salt Manufacturing.

Required

a. Give the entry recorded by Pepper Corporation at the time of acquisition.

b. Give the journal entries recorded by Pepper during 20X0 and 20X1 related to its investment in Salt Manufacturing.

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

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SALT MANUFACTURING Balance Sheet January 1, 20X0 Book Value Assets Cash & Receivables Land Buildings & Equipment (net) Patent Total Assets Liabilities & Equities Accounts Payable Common Stock Retained Earnings Total Liabilities & Equities $ 30,000 70,000 120,000 80,000 $300,000 $ 90,000 150,000 60,000 $300,000 Fair Value $ 30,000 80,000 150,000 80,000 90,000