Problem 7-2 (LO 2) Worksheet, blocks, control with first block, merchandise sales. On January 1, 20X1, James Company purchases 70% of the common stock of Craft Company for $245,000. On this date, Craft has common stock, other paid-in capital in excess of par, and retained earnings of $50,000, $100,000, and $150,000, respectively.

On May 1, 20X2, James Company purchases an additional 20% of the common stock of Craft Company for $92,000.

Net income and dividends for two years for Craft Company are as follows:

In 20X2, the net income of Craft from January 1 through April 30 is $30,000.
On January 1, 20X1, the only tangible asset of Craft that is undervalued is equipment, which is worth $20,000 more than book value. The equipment has a remaining life of four years, and straight-line depreciation is used. Any remaining excess is goodwill.
In the last quarter of 20X2, Craft sells $50,000 in goods to James, at a gross profit rate of 30%. On December 31, 20X2, $10,000 of these goods are in James’s ending inventory.
The trial balances for the companies on December 31, 20X2, are as follows: