IERCISE6 4) Sophisticated equity method, second year, eiiminations, state- ments

Question

IERCISE6 4) Sophisticated equity method, second year, eiiminations, state- ments. T are presented as follows: he trial balances of Pepper and Salt companies of Exercise 5 for December 31, 20X2, Salt 115,000 200,000 130,000 (40,000) Pepper 152,000 400,000 Accumulated Depreciation Investment in Salt Company Current Liabilities Common Stock ($10 par) Retained Earnings, January 1, 20X2 260,000 (80,000) (300,000 100,000) 255,000 (170,000) 200,000) 100,000) 85,000 ales 160,000 (7,000) Expenses . .. Subsidiary Income (from Salt Company). . Dividends Declared.... 10,000 Total 0 0 Pepper Company continued to use the sophisticated equity method worksheet. related income distribution schedules 1. Prepare all the eliminations and adjustments that would be made on the 2. If you did not solve Exercise 4, prepare the 20X2 consolidated income statement and its

Explanation / Answer

Goodwill or capital reserve on acquisition

Investment = 260000

Less 70 % of Share capital + Retained Earnings (100000+170000)*0.7 = 189000

Goodwill on acquisition = 260000-189000= 71000

Non Controlling Interest = 30%of 270000= 81000 less dividend paid i.e 30%of 10000 =81000-3000=78000

Particulars Pepper Salt Consolidated Current Assets 152000 115000 267000 Depreciable fixed assets 400000 200000 600000 Accumulated depreciation -130000 -40000 -170000 Goodwill 71000 investment in salt Company 260000 Current Liabilities -80000 -80000 Common Stock -300000 -100000 -300000 Retained Earnings -255000 -170000 -255000 Non controlling interest* -78000 Sales -200000 -100000 -300000 Expenses 160000 85000 245000 Subsidiary Income -7000 Dividends Declared 10000 Total 0 0 0 Consolidated Income statement Particulars Revenue - 200000+100000 300000 Expenses - 160000+85000 -245000 Gross profit $ 55000 Share of NCI @30% 4500 Attributable to Owners 50500

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