Analyzing Cost and Consolidation Worksheet Pud Inc. acquired 100% of Stid Inc.’s outstanding common stock for $900,000 cash on 1/1/05. Pud also incurred $55,000 of costs in connection with the acquisition. Of this amount, $15,000 was a finder’s fee, $12,000 an allocation of overhead from the mergers and acquisition department, and $8,000 an allocated portion of the president’s salary (the president had devoted approximately 20% of her time during 2004 to the merger). The remaining $20,000 was for legal and accounting fees and travel costs.

Financial data for each company immediately before the acquisition are as follows:

Pud Inc. Sud Inc.

Book Value Book Value Current Value Cash . . . $ 1,345,000 $ 100,000 $ 100,000 Accounts receivable, net . . 900,000 140,000 140,000 Notes receivable . 80,000 60,000 Inventory . . 1,100,000 310,000 340,000 Land . . 500,000 250,000 410,000 Buildings and equipment . . 4,500,000 800,000 620,000 Accumulated depreciation . . (1,400,000) (300,000) Patent, net . . 200,000 40,000 100,000 Goodwill, net of amortization .

Deferred acquisition costs . . 55,000 80,000 Total Assets . . $ 7,200,000 $1,500,000 $1,770,000 Payables and accruals . . $ 1,800,0(T0 $ 250,000 $ 250,000 Long-term debt . . 4,000,000 600,000 670,000 Common stock . . 600,000 150,000 Retained earnings . . 800,000 500,000 Total Liabilities and Equity . . $ 7,200,000 $1,500,000 If Sud’s sales for 2006 exceed $850,000, Pud must pay an additional $60,000 cash to Sud’s stockholders. Management is optimistic that this sales level can he attained.

1. Analyze the investment account by the components of the major conceptual elements as of 1/1/05.

2. Prepare the consolidation entries as of 1/1/05.