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34. On January 1, 20X1, Pepper Company purchased 90% of the common stock of Salt Company for $360,000
when Salt had total shareholders' equity as follows:
8% Preferred Stock, $100 par
$100,000
Common Stock, $10 par
50,000
Other Paid-in Capital
120,000
Retained Earnings
180,000
Total
$450,000
Any excess of cost over book value on this date is attributed to a patent, to be amortized over 10 years. The 8% preferred stock is cumulative, non-
participating, and has a liquidating value of par plus dividends in arrears. There were no preferred dividends in arrears on January 1, 20X1. Pepper
elected to account for its investment in Salt using the simple equity method.
During 20X1, Salt had a net loss of $10,000 and paid no dividends. In 20X2, Salt had net income of $100,000 and paid dividends totaling $36,000.
During 20X2, Salt sold merchandise to Pepper for $40,000, of which $20,000 is still held by Pepper on December 31, 20X2. Salt's usual gross profit
is 40%.
Required:
Complete the Figure 7-7 worksheet for consolidated financial statements for the year ended December 31, 20X2.
Figure 7-7
Trial Balance
Eliminations and
Pepper
Salt
Adjustm
ents
Account Titles
Company
Company
Debit
Credit
Inventory
60,000
40,000
Other Current Assets
154,200
174,000
Invest in Salt Company
408,600
Land
120,000
80,000
Buildings and Equipment
450,000
370,000
Accumulated Depreciation
(200,000)
(80,000)
Current Liabilities
(80,000)
(60,000)
Long-Term Liabilities
(100,000)
(20,000)
Common Stock – P Co.
(200,000)
Other Pd-in Capt – P Co.
(100,000)
Retained Earnings – P Co.
(400,000)
Preferred Stk, 8% – S Co.
(100,000)
RE to Pref Stk – S Co.
Common Stock – S Co.
(50,000)
Other Pd-In Capt – S Co.
(120,000)
Retained Earnings – S Co.
(170,000)
Net Sales
(500,000)
(450,000)
Cost of Goods Sold
300,000
270,000
Operating Expenses
120,000
80,000
Investment Income
(82,800)
Div. Declared – P Co.
50,000
Div. on Pref Stk – S Co
16,000
Div. on Comm Stk – S Co.
20,000
Consolidated Net Income
Allocated to:
NCI-Preferred
NCI-Common
Controlling Interest
Total NCI
Controlling RE 12/31
0
0
(continued)
Consol.
Control.
Consol.
Income
Retained
Balance
Account Titles
Statement
NCI
Earnings
Sheet
Inventory
Other Current Assets
Invest in Salt Company
Land
Buildings and Equipment
Accumulated Depreciation
Current Liabilities
Long-Term Liabilities
Common Stock – P Co.
Other Pd-in Capt – P Co.
Retained Earnings – P Co.
Preferred Stk, 8% – S Co.
RE to Pref Stk – S Co.
Common Stock – S Co.
Other Pd-In Capt – S Co.
Retained Earnings – S Co.
Net Sales
Cost of Goods Sold
Operating Expenses
Investment Income
Div. Declared – P Co.
Div. on Pref Stk – S Co
Div. on Comm Stk – S Co.
Consolidated Net Income
Allocated to:
NCI-Preferred
NCI-Common
Controlling Interest
Total NCI
Controlling RE 12/31
For the worksheet solution, please refer to Answer 7-7.
35. On January 1, 20X1, Pepper Company purchased 90% of the common stock of Salt Company for $360,000
when Salt had total shareholders' equity as follows:
8% Preferred Stock, $100 par
$100,000
Common Stock, $10 par
50,000
Other Paid-in Capital
120,000
Retained Earnings
180,000
Total
$450,000
Any excess of cost over book value on this date is attributed to a patent, to be amortized over 10 years. The 8% preferred stock is cumulative, non-
participating, and has a liquidating value of par plus dividends in arrears. There were no preferred dividends in arrears on January 1, 20X1. Pepper
elected to account for its investment in Salt using the cost method.
During 20X1, Salt had a net loss of $10,000 and paid no dividends. In 20X2, Salt had net income of $100,000 and paid dividends totaling $36,000.
During 20X2, Salt sold merchandise to Pepper for $40,000, of which $20,000 is still held by Pepper on December 31, 20X2. Salt's usual gross profit
is 40%.
Required:
Complete the Figure 7-8 worksheet for consolidated financial statements for the year ended December 31, 20X2.
Figure 7-8
Trial Balance
Eliminations and
Pepper
Salt
Adjustments
Account Titles
Company
Company
Debit
Credit
Inventory
60,000
40,000
Other Current Assets
154,200
174,000
Invest in Salt Co.
360,000
Land
120,000
80,000
Buildings and Equipment
450,000
370,000
Accumulated Depreciation
(200,000)
(80,000)
Current Liabilities
(80,000)
(60,000)
Long-Term Liabilities
(100,000)
(20,000)
Common Stock – P Co.
(200,000)
Other Pd-in Capt – P Co.
(100,000)
Retained Earnings – P Co.
(416,200)
Preferred Stk, 8% – S Co.
(100,000)
RE to Pref Stk – S Co.
Common Stock – S Co.
(50,000)
Other Pd-In Capt – S Co.
(120,000)
Retained Earnings – S Co.
(170,000)
Net Sales
(500,000)
(450,000)
Cost of Goods Sold
300,000
270,000
Operating Expenses
120,000
80,000
Investment Income
(18,000)
Div. Declared – P Co.
50,000
Div. on Pref Stk – S Co
16,000
Div. on Comm Stk – S Co.
20,000
Consolidated Net Income
Allocated to:
NCI-Preferred
NCI-Common
Controlling Interest
Total NCI
Controlling RE 12/31
0
0
(continued)
Consol.
Control.
Consol.
Income
Retained
Balance
Account Titles
Statement
NCI
Earnings
Sheet
Inventory
Other Current Assets
Invest in Salt Co.
Land
Buildings and Equipment
Accumulated Depreciation
Current Liabilities
Long-Term Liabilities
Common Stock – P Co.
Other Pd-in Capt – P Co.
Retained Earnings – P Co.
Preferred Stk, 8% – S Co.
RE to Pref Stk – S Co.
Common Stock – S Co.
Other Pd-In Capt – S Co.
Retained Earnings – S Co.
Net Sales
Cost of Goods Sold
Operating Expenses
Investment Income
Div. Declared – P Co.
Div. on Pref Stk – S Co
Div. on Comm Stk – S Co.
Consolidated Net Income
Allocated to:
NCI-Preferred
NCI-Common
Controlling Interest
Total NCI
Controlling RE 12/31
For the worksheet solution, please refer to Answer 7-8.
