Prepare a consolidated worksheet for Pepper Company and subsidiary Salty Company for the year ended December 31, 2011

On January 1, 2011, Pepper Company purchases 80% of the common stock of Salty Company for $270,000. On this date, Salty has total owners’ equity of $300,000. The excess of cost over book value is due to goodwill. For tax purposes, goodwill is amortized over 15 years.During 2011, Pepper appropriately accounts for its investment in Salty using the simple equity method. During 2011, Pepper sells merchandise to Salty for $50,000, of which $10,000 is held by Salty on December 31, 2011. Pepper’s gross profit on sales is 40%. During 2011, Salty sells some land to Pepper at a gain of $10,000. Pepper still holds the land at year-end. Pepper and Salty qualify as an affiliated group for tax purposes and, thus, will file a consolidated tax return. Assume a 30% corporate income tax rate. The following trial balances are prepared on December 31, 2011 Pepper Company Salty Company Inventory, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 50,000 Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,000 200,000 Investment in Salty Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302,000 Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000 100,000 Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 200,000 Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80,000) (60,000) Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (150,000) (50,000) Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (200,000) (100,000) Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,000) (50,000) Paid-In Capital in Excess of Par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (180,000) (100,000) Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (320,000) (150,000) Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (500,000) (300,000) Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 180,000 Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 80,000 Subsidiary Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,000) Gain on Sale of Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,000) Dividends Declared. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 10,000 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0

Prepare a consolidated worksheet for Pepper Company and subsidiary Salty Company for the year ended December 31, 2011. Include the determination and distribution of excess schedule and the income distribution schedules.

 

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