29 Jun Question 7. On January 1, 20X1, Pr
Question
7. On January 1, 20X1, Prism Company purchased 7,500 shares of the common stock of Sight Company for $495,000. On this date, Sight had 20,000 shares of $10 par common stock authorized, 10,000 shares issued and outstanding. Other paid-in capital and retained earnings were $200,000 and $300,000 respectively. On January 1, 20X1, any excess of cost over book value is due to a patent, to be amortized over 15 years.
Sight’s net income and dividends for two years were:
……………………………
Net income
20X1
20X2
$50,000
$80,000
Dividends…………………………….
10,000
20,000
In November, 20X1, Sight Company also declared a 10% stock dividend at a time when the market price of its common stock was $50 per share. The stock dividend was distributed on December 31, 20X1.
For both 20X1 and 20X2, Prism Company has accounted for its investment in Sight using the cost method.
During 20X1, Sight Company sold goods to Prism Company for $40,000, of which $10,000 was on hand on December 31, 20X1. During 20X2, Sight sold goods to Prism for $60,000 of which $15,000 was on hand on December 31, 20X2. Sight’s gross profit on intercompany sales is 40%.
Required:
Complete the Figure 8-4 worksheet for consolidated financial statements for 20X2.
8-17
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