Problem 4-5 (LO 2) 80%, equity, beginning and ending inventory, writedown, note. On January 1, 20X1, Silvio Corporation exchanged on a 1-for-3 basis common stock it held in its treasury for 80% of the outstanding stock of Jenkins Company. Silvio Corporation common stock had a market price of $40 per share on the exchange date.

On the date of the acquisition, the stockholders’ equity section of Jenkins Company was as follows:

Common stock ($5 par) . . . . . . . . . . . . . . . . . $ 450,000 Paid-in capital in excess of par . . . . . . . . . . . . 180,000 Retained earnings . . . . . . . . . . . . . . . . . . . . . 370,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000 Also on that date, Jenkins Company’s book values approximated fair values, except for the land, which was undervalued by $75,000. The remaining excess is attributable to goodwill.

Information regarding intercompany transactions for 20X3 follows:

a. Silvio Corporation sells merchandise to Jenkins Company, realizing a 30% gross profit. Sales during 20X3 were $140,000. Jenkins had $25,000 of the 20X2 purchases in its beginning inventory for 20X3 and $35,000 of the 20X3 purchases in its ending inventory for 20X3.

b. Jenkins signed a 12%, 4-month, $10,000 note to Silvio in order to cover the remaining balance of its payables on November 1, 20X3. No new merchandise was purchased after this date.

c. Jenkins wrote down to $28,000 the merchandise purchased from Silvio Corporation and remaining in its 20X3 ending inventory.