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II. Problem 7-2 (LO 2) Worksheet, blocks, control with first block, merchandise sales. On January 1, 20X5, James Company purchases 60% of the common stock of Craft Company for $420,000. On this date, Craft has common stock, other paid-in capital in excess of par, and retained earnings of $50,000, $200,000, and $60,000, respectively. On May 1, 20X6, James Company purchases an additional 20% of the common stock of Craft Company for $300,000. Net income and dividends for two years for Craft Company are as follows: 20X5 20X6 Net Income for the year $100,000 $50,000 Dividends, declared in December 40,000 20,000 In 20X6, the net income of Craft from January 1 through April 30 is $30,000. On January 1, 20X5, the only tangible asset of Craft that is undervalued is equipment, which is worth $60,000 more than book value. The equipment has a remaining life of five years, and straight-line depreciation is used. Any remaining excess is goodwill. In the last quarter of 20X6, Craft sells $100,000 in goods to James, at a gross profit rate of 40%. On December 31, 20X2, $20,000 of these goods are in James's ending inventory. The trial balances for the companies on December 31, 20X6, are as follows: James Company carries its Investment in Craft Company under the sophisticated equity method. Accordingly, it has recorded a journal entry on May 1, 20X6 to account for any adjustment in its Investment in Craft Company account as a result of James Company purchasing an additional 20% of the common stock of Craft Company for $300,000. REQUIRED 1. Prepare all elimination entries in general journal form. 2. Prepare a consolidation worksheet at 12/31/X6 by (a) posting properly prepared elimination entries to the worksheet and (b) appropriately deriving the CONSOLIDATION BALANCE SHEET column. 2