Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. Pepper Company acquired 80 percent of Salt Company's stock at underlying book value on January 1, 2018. At that date, Salt reported common stock outstanding of $1,050,000 and retained earnings of $840,000; the fair value of the noncontrolling interest was equal to 20 percent of the book value of Salt Company. Salt Co. sold equipment to Pepper Co. for $720,000 on December 31, 2018. Salt Co. had originally purchased the equipment for $800,000 on January 1, 2015, with a useful life of 10 years and no salvage value. At the time of the purchase, Pepper Co. estimated that the equipment still had the same remaining useful life. Both companies use straight-line depreciation.
Pepper sold land costing $132,000 to Salt Company on June 28, 2019, for $178,000.

Required:

1. Prepare Pepper’s journal entries related to intercompany sale for 2019 to account for the investment in Salt.

2. Prepare the consolidation entries that related to intercompany sale of land for 2019.

3. Prepare the consolidation entries that related to intercompany sale of equipment for 2019.

4. Assume S reported net income of $35,000 and dividends of $7,000 for each year of 2018 and 2019. Calculate Pepper’s investment account on December 31, 2019.

Answer rating: 100% (QA)

1 Journal Entry for Investment in Salt Company in the Books of Pepper Company Date Account Name Debi... View the full answer