Pepper Company owned 60,000 of Salt Company's 100,000 outstanding shares.On January 2, 2018, Salt purchased 20,000 of its outstanding shares from the NCI for $70,000.Pepper purchased its shares on January 1, 2016, 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, 2017, Salt Company had the following stockholders' equity:

$\begin{array}{lr}
\text { Common stock, } \$ 1 \text { par } & \$ 100,000 \
\text { Paid-in capital in excess of par } & 50,000 \
\text { Retained earnings } & 270,000
\end{array}$
The amount of the adjustment to Pepper's equity would be a:

Question

Pepper Company owned 60,000 of Salt Company's 100,000 outstanding shares.On January 2, 2018, Salt purchased 20,000 of its outstanding shares from the NCI for $70,000.Pepper purchased its shares on January 1, 2016, 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, 2017, Salt Company had the following stockholders' equity:

\begin{array}{lr}\text { Common stock, } \$ 1 \text { par } & \$ 100,000 \\\text { Paid-in capital in excess of par } & 50,000 \\\text { Retained earnings } & 270,000\end{array}

The amount of the adjustment to Pepper's equity would be a:

$\begin{array}{lr}
\text { Common stock, } \$ 1 \text { par } & \$ 100,000 \
\text { Paid-in capital in excess of par } & 50,000 \
\text { Retained earnings } & 270,000
\end{array}$
 The amount of the adjustment to Pepper's equity would be a:

Quizplus · Accepted Answer

The correct answer is A because the adjustment to Pepper's equity would be a $15,000 increase. This is because Pepper owns 60% of Salt Company, and Salt Company purchased 20,000 of its outstanding shares from the NCI for $70,000. This means that Pepper's share of the repurchase is $42,000 (60% x $70,000). Pepper's equity would therefore increase by $42,000.

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