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On January 1, 20X1, Pepper purchased 80% interest in Salt for $800K. At the time of the purchase, Salts assets and liabilities were equal to book value except for Inventory, Building and Land (which had fair values in excess of book value of $30K, $80K and $115K respectively). Net Asset BV at the time of purchase was $680K. Included in the $800K purchase price was a covenant not to compete. The covenant was value at $40K and is for a two year period. At the time of the purchase, it was determined that the all of Salts depreciable assets had a remaining 5 year life.

The following events occurred during the year:

• Event #1 Pepper sold inventory with an originally cost of $420K to Salt for $700K. Salt sold 90% to a third party for $800K and had 10% of the inventory remaining at the end of the year
• Event #2 On January 1, 20X1 Salt borrowed $800K from Pepper at 7% interest. Salt paid zero down on the principle during the year. However, Salt paid $20K of the interest and had a payable to Pepper at year end for the remaining difference. Pepper had a corresponding receivable on its books at the end of the year
• Event #3 On January1, 20X1, Salt sold equipment (that was originally purchased for $300K and had an associated depreciation of $150K. Salt sold the equipment to Pepper for $200K. At the time of sale, it was determined that the equipment had a five year life remaining
• Event #4 Salt paid Pepper $95K for accounting and tax services during the year. Pepper incurred $40K in costs providing those services to Salt.

Prepare the elimination entry(s) for Event #3 at December 31, 20X1

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