On December 31, Year 7, Pepper Company, a public company, agreed to a business combination with Salt Limited, an unrelated private company. Pepper issued 82 of its common shares for all 50 of the outstanding common shares of Salt. This transaction increased the number of outstanding Pepper shares from 100 to 182. Pepper's shares were trading at around $16 per share in days leading up to the business combination. The condensed balance sheets for the two companies on this date prior to the transaction were as follows:

Pepper Salt

Carrying Amount Fair Value Carrying amount Fair Value

Tangible assets $1,000 $1,200 $240 $270

Intangible assets $400$1,000 $560 $840

(excluding goodwill)

Total $1,400 $800

Liabilities$800 $820 $340 $390

Shareholders' equity $600$460

Total$1,400 $800

On January 1, Year 8, Pepper sold 40% of its investment in Salt to an unrelated third party for $600 in cash. The CFO at Pepper stated that Salt must have been worth $1,500 if the unrelated third party was willing to pay $600 for a 40% interest in Salt. If so, Pepper saved $188 by buying Salt for only $1,312. Accordingly, the CFO wants to recognize a gain of $188 in the Year 7 income statement to reflect the true value of the Salt shares.

You have been asked by Cheryl Wozniak, the CFO, to prepare a presentation to senior management on the accounting implications for the business combination and subsequent sale of 40% of the investment. She would like you to consider two alternative methods of valuing Salt on the consolidated balance at the date of acquisition-one based on cost of purchase and one based on the implied value of the subsidiary based on the sales price on January 1, Year 8.

Required:

Prepare Pepper's consolidated balance sheet after the sale of the 40% interest in Salt to the unrelated third party under the two alternatives (Cost Method and Implied Method).