Assigning Excess of Cost over Book Value Ponda Inc., a highly diversified company, acquired 100% of the outstanding common stock of three companies during the current year. In each case, Ponda’s cost was $500,000 in excess of the $4,000,000 book value of the net assets. The reason Ponda paid more than the book value of the net assets of each company is stated below:

1. Acquisition of Ironex Inc. Ironex mines iron ore from land it owns. Ponda acquired Ironex to ensure a continual supply of iron ore for its steel-making operation.

2. Acquisition of Memco Inc. Memco manufactures high-quality memory chips for computers.

Few companies can manufacture high-quality chips of this type. Ponda acquired Memco to en¬

sure a continual supply of high-quality memory chips for its computer manufacturing opera¬

tion.

3. Acquisition of Farmco Inc. Farmco manufactures farm machinery and earns a return on invest¬

ment that is average for its industry. On this basis, Farmco was not worth acquiring. Ponda be¬

lieves, however, that it can bring about substantial efficiencies by integrating Farmco’s opera¬ tions with those of another subsidiary, which also manufactures farm machinery. The combined results are expected to increase substantially the overall return on investment of each previously separate operation.

Required For each of these acquisitions, determine how you would classify Ponda’s cost in excess of book value and how you would account for it in future period consolidated statements.