On January 1, 20X1, Pepper Company Purchased 90% of the Common

Essay

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:
$\begin{array}{lr}8 \% \text { Preferred Stock, } \$ 100 \text { par } & \$ 100,000 \\\text { Common Stock, } \$ 10 \text { par } & 50,000 \\\text { Other Paid-in Capital } & 120,000 \\\text { Retained Earnings } & \$ 180,000 \\\quad \text { Total } & \$ 450,000\end{array}$ 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 7-8 worksheet for consolidated financial statements for the year ended December 31, 20X2.