Step Acquisition: Significant Influence Pomco acquired blocks of Somco’s outstanding common stock over a two-year period. Related information is as follows:

Information Relating to Investee Percentage Acquired Date Block Was Required Pomco's Cost Common Stock Retained Earnings Undervaluation of Net Assets — Patent 20% 1/1/05 . $ 40,000 $100,000 $ 25,000 20% $50,000 1/1/06 . 56,000 100,000 55,000 40,000 60% 12/31/06 . 208,000 100,000 120,000 35,000 100%

Required Additional information:

1. Somco’s only under- or (over)valued asset or liability at each acquisition date was a patent.

2. Somco declared cash dividends on common stock of $15,000 in both 2005 and 2006.

3. The undervalued patent has a remaining life of five years at 1/1/05.

4. Pomco was able to exert significant influence after acquiring the first block of stock.

5. Pomco has decided to use the parent company concept.

1. Prepare an analysis of the Investment account through the date control was achieved.

2. Prepare all consolidation entries at 12/31/06.