Based on event #1 above, what would be the ending inventory balance on the December 31, 2X01 Pepper’s Consolidated Financials for the inventory that has not been sold to an outside party?
On January 1, 20X1, Pepper purchased 70% interest in Salt for $420K. At the time of the purchase, Salt’s assets and liabilities were equal to book value except for Inventory, Building and Land (which had fair values in excess of book value of $10K, $30K and $45K respectively). Net Asset BV at the time of purchase was $440K. Included in the $420K purchase price was a covenant not to compete. The covenant was value at $30K and is for a two year period. At the time of the purchase, it was determined that the all of Salt’s
The following events occurred during the year:
- Event #1 Salt sold inventory with an originally cost of $369K to Pepper for $450K. Pepper sold 70% to a third party for $600K and had 30% of the inventory remaining at the end of the year
- Event #2 On January 1, 20X1 Salt borrowed $750K from Pepper at 8% interest. Salt paid zero down on the principle during the year. However, Salt paid $35K of the interest and had a payable to Pepper at year end for the remaining difference. Pepper had a corresponding receivable on its books at the end of the year
- Event #3 On January1, 20X1, Salt sold equipment (that was originally purchased for $230K and had an associated depreciation of $40K). Salt sold the equipment to Pepper for $225K. At the time of sale, it was determined that the equipment had a five year life remaining
- Event #4 Salt paid Pepper $135K for accounting and tax services during the year. Pepper incurred $97K in costs providing those services to Salt
Based on event #1 above, what would be the ending inventory balance on the December 31, 2X01 Pepper’s Consolidated Financials for the inventory that has not been sold to an outside party?
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