Worksheet, blocks, control with first block, merchandise sales. On January 1, 2015, 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, 2016, 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 2016, the net income of Craft from January 1 through April 30 is $30,000. On January 1, 2015, 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 2016, Craft sells $50,000 in goods to James, at a gross profit rate of 30%. On December 31, 2016, $10,000 of these goods are in James’s ending inventory. The trial balances for the companies on December 31, 2016, are as follows:
1. Using this information, prepare a determination and distribution of excess schedule. Prepare an analysis of the later purchase of a 20% interest.