Problem 4-2 (LO 2) 80%, cost, beginning and ending inventory. On April 1, 20X1, Baxter Corporation purchased 80% of the outstanding stock of Crystal Company for $425,000.

A condensed balance sheet of Crystal Company at the purchase date follows:

All book values approximated fair values on the purchase date. Any excess cost is attributed to goodwill.
The following information has been gathered pertaining to the first 2 years of operation since Baxter’s purchase of Crystal Company stock:

a. Intercompany merchandise sales are summarized as follows:
Merchandise Remaining in Gross Purchaser’s Date Transaction Sales Profit Ending Inventory April 1, 20X1 to Baxter to Crystal $35,000 15% $9,000 March 31, 20X2 Crystal to Baxter 20,000 20 3,500 April 1, 20X2 to Baxter to Crystal 32,000 22 6,000 March 31, 20X3 Crystal to Baxter 30,000 25 3,000

b. On March 31, 20X3, Baxter owed Crystal $10,000, and Crystal owed Baxter $5,000 as a result of the intercompany sales.

c. Baxter paid $25,000 in cash dividends on March 20, 20X2 and 20X3. Crystal paid its first cash dividend on March 10, 20X3, giving each share of outstanding common stock a $0.15 cash dividend.

d. The trial balances of the two companies as of March 31, 20X3, follow: