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University of Michigan Dearborn Homework 9 ACC 357 Winter 2016 Name__________________________________________________________________ Pepper, Inc., purcashed 80% of the outstanding stock of the Salt Company on January 01, 2015, for $2,250,000 cash. At that date, Salt Company's assets and liabilities had the following fair values and book values: Cash and Receivables Inventory Plant Assets Current Liabilities Long-Term Debt FMV $ 1,500,000 $ 1,540,000 $ 4,620,000 $ (3,500,000) $ (1,800,000) BV $ 1,500,000 $ 1,400,000 $ 4,200,000 $ (3,500,000) $ (1,500,000) All of Salt Company's inventory was sold in the following year. Salt Company depreciates plant assets over a 20-year life. Pepper, Inc. amortizes debt premiums and discounts over its 5 years to maturity using straight-line amortization. Pepper, Inc. accounts for this investment using the equity method. The financial statements for both companies for the year ended December 31, 2015, are shown below: INCOME STATEMENT For the Period Ending December 31 2015 Pepper, Inc. Salt Company Revenue $ 14,000,000 $ 6,000,000 Income From Sub. 439,200 Total Revenue Cost Of Sales Operating Expenses Interest Expense Total Expenses Net Income $ STATEMENT OF RETAINED EARNINGS ------------------------Begining Balance $ Add: Net Income Deduct: Dividends Ending Balance $ Page 1 of 2 14,439,200 8,500,000 3,000,000 200,000 11,700,000 2,739,200 $ 6,000,000 3,750,000 1,500,000 100,000 5,350,000 650,000 4,500,000 $ 2,739,200 500,000 6,739,200 $ 1,700,000 650,000 100,000 2,250,000 Balance Sheet As of December 31 2015 Pepper, Inc. Assets Cash and Receivables Inventory Plant Assets Accumulated Depreciation Investment in Sub. Total Assets Liabilities and Equities Current Liabilities Long-Term Debt Capital Stock Retained Earnings Total Liabilities and Equities Required: Salt Company $ 4,000,000 $ 1,800,000 4,500,000 1,650,000 6,000,000 4,000,000 (net) (1,800,000) 2,609,200 $ 15,309,200 $ 7,450,000 $ 4,770,000 2,200,000 1,600,000 6,739,200 15,309,200 $ 3,300,000 1,500,000 400,000 2,250,000 $ 7,450,000 $ 1 Using the above data and Excel, prepare a consolidated worksheet for the period ending December 31, 2015. Be sure all input data is in a separate part of the schedule so that the solution will change with changes of the input. 2 Include subschedules to calculate goodwill and the equity method subsidiary income for the period. 3 By linking to the work paper prepared in part 1, prepare a formal consolidated income statement, retained earnings statement, and balance sheet as of December 31, 2015. Page 2 of 2