In 20X1, Pepper Company bought 75% of S Company’s common shares, establishing control over the Board of Directors. Pepper Company used the cost method to account for its investment in S Co. during the...

In 20X1, Pepper Company bought 75% of S Company’s common shares, establishing control over the Board of Directors. Pepper Company used the cost method to account for its investment in S Co. during the year, but prepared consolidated financial statements at the end of the fiscal year, which are shown in summary form:Required: 1. Why does the parent company use the cost method during the year? 2. Identify the accounts on the consolidated statements that do not appear on either of the unconsolidated statements. Explain the meaning of each new account.3. Identify the accounts or amounts that appear on the unconsolidated financial statements that do not carry over to the consolidated amounts. Explain why they have been eliminated. 4. What is the most likely reason that the unconsolidated accounts receivables and current liabilities do not add to the balance shown in the consolidated financialstatements?

View Solution:

In 20X1 Pepper Company bought 75 of S Company s common