Chapter 5, Problem 5.25P

Equity Entries with Differential
On January 1, 20X0, Pepper Corporation issued 6,000 of its $10 par value shares to acquire45 percent of the shares of Salt Manufacturing. Salt Manufacturing’s balance sheet immediatelybefore the acquisition contained the following items:

On the date of the stockacquisition, Pepper’s shares were selling a $35, and Salt Manufacturing’sbuildings and equipment had a remaining economic life of 10 year. The amount of the differential assigned to goodwill is not impaired.
In the two years following the stock acquisition. Salt Manufacturing reported net income of$80,000 and $50,000 and paid dividends of $20,000 and $40,000, respectively. Pepper used theequity method in accounting for its ownership of Salt Manufacturing.
Required
a. Give the entry recorded by Pepper Corporation at the time of acquisition.
b. Give the journal entries recorded by Pepper during 20X0 and 20X1 related Lo its investmentin Salt Manufacturing.
c. What balance will be reported in Peppers investment account on December 31, 20X1?