Exercise 3 (LO 2) Equity method, first year, eliminations, statements. 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 simple equity method to record its investment in Salt Company.

1. 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. Prepare the 20X1 consolidated income statement and its related income distribution schedules.
4. Prepare the 20X1 consolidated balance sheet.