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Pepper Company Owned 60,000 of Salt Company's 100,000 Outstanding Shares

Question 11

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Pepper Company owned 60,000 of Salt Company's 100,000 outstanding shares. On January 2, 20X3, Salt purchased 20,000 of its outstanding shares from the NCI for $70,000. Pepper purchased its shares on January 1, 20X1, at which time the fair value of Salt exceeded its book value by $50,000. This difference was due to machinery that was undervalued and had a remaining life of 5 years. On December 31, 20X2, Salt Company had the following stockholders' equity: Pepper Company owned 60,000 of Salt Company's 100,000 outstanding shares. On January 2, 20X3, Salt purchased 20,000 of its outstanding shares from the NCI for $70,000. Pepper purchased its shares on January 1, 20X1, at which time the fair value of Salt exceeded its book value by $50,000. This difference was due to machinery that was undervalued and had a remaining life of 5 years. On December 31, 20X2, Salt Company had the following stockholders' equity:   The amount of the adjustment to Pepper's equity would be a: A) $15,000 increase B) $3,000 increase C) $10,500 increase D) $15,000 decrease The amount of the adjustment to Pepper's equity would be a:


A) $15,000 increase
B) $3,000 increase
C) $10,500 increase
D) $15,000 decrease

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