On January 1, 2017, Pepper purchased 75% of the outstanding shares of Salt for $1,275,000. At that
Question:
On January 1, 2017, Pepper purchased 75% of the outstanding shares of Salt for $1,275,000. At that time, Salt’s assets and liabilities had the following book and fair values.
SALT LTD. January 1, 2017 | ||
Book value | Fair value | |
Cash | $140,000 | $140,000 |
A/R | 350,000 | 350,000 |
Inventory | 345,000 | 345,000 |
Capital asset | 1,000,000 | 1,070,000 |
1,835,000 | 1,905,000 | |
A/P | 255,000 | 255,000 |
Common shares | 300,000 | |
R/E | 1,280,000 | |
1,835,000 | ||
Capital assets have a 10-year remaining life. | ||
Balance Sheet Dec 31, 2017 | ||
Pepper | Salt | |
Cash | $90,000 | $160,000 |
A/R | 350,000 | 410,000 |
Inventory | 420,000 | 564,000 |
Capital assets | 2,075,000 | 950,000 |
Investment in salt | 1,275,000 | - |
$4,210,000 | $2,084,000 | |
A/P | $55,000 | $377,000 |
Deferred income tax | 75,000 | 60,000 |
Long-term debt | 900,000 | - |
Common shares | 600,000 | 300,000 |
R/E | 2,580,000 | 1,347,000 |
$4,210,000 | $2,084,000 | |
Statements of Income and Retained Earnings Year ended Dec 31, 2017 | ||
Pepper | Salt | |
Sales | $3,750,000 | $980,000 |
COGS | 2,500,000 | 392,000 |
1,250,000 | 588,000 | |
Other expenses | 755,000 | 328,000 |
Interest on long-term debt | 90,000 | - |
Depreciation | 70,000 | 50,000 |
Other income | (60,000) | - |
855,000 | 378,000 | |
Net income before tax | 395,000 | 210,000 |
Income tax | 124,500 | 63,000 |
Net income after tax | 270,500 | 147,000 |
Retained earnings, Jan 1, 2017 | 2,459,500 | 1,280,000 |
Dividends declared | (150,000) | (80,000) |
Retained earnings, Dec 31, 2017 | 2,580,000 | 1,347,000 |
During 2017, Pepper sold goods to Salt for $130,000. These goods cost Pepper $85,000. Salt sold 60% of these goods during 2017. Also, during 2017, Salt sold goods to Pepper for $90,000, earning a gross profit of 40%. Pepper had 20% of these goods in its 2017 ending inventory. The tax rate for both companies is 30%. On December 31, 2017, Pepper determined that there was a $3,000 goodwill impairment.
Required:
Note: The calculations in part 1 are required to earn marks in part 2. Assignments submitted without supporting calculations will receive zero for this question.
Pepper accounts for Salt using the entity theory and cost methods.
Calculate the following for consolidated financial statements.
a). Goodwill using fair values
b). Acquisition differential, and prepare the ADA table
c). Unrealized inventory profits before and after tax
d). Consolidated net income and the NCI share
e). Consolidated retained earnings and NCI Balance Sheet
Prepare a consolidated income statement that includes a section below net income attributing income to shareholders of Pepper and NCI shareholders. Prepare a consolidated balance sheet for 2017. Prepare these statements in good form.
Accounting Principles
ISBN: 978-1119048473
7th Canadian Edition Volume 2
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak