Reference no: EM132686681

Lucky's acquires Waterview, Inc., by issuing 40,000 shares of $1 par common stock with a market price of $25 per share on the acquisition date and paying $125,000 cash. The assets and liabilities on Waterview's balance sheet were valued at fair values except equipment that was undervalued by $300,000. There was also an unrecorded patent valued at $40,000, as well as an unrecorded trademark valued at $75,000. In addition, the agreement provided for additional consideration, valued at $60,000, if certain earnings targets were met.

The pre-acquisition balance sheets for the two companies at acquisition date are presented below.

                                                                 Lucky's           Waterview
Cash                                             $ 300,000        $ 260,000
Accounts receivable                             250,000         135,000
Inventory                                           254,000          275,000
Property, plant, and equipment                  2,300,000      356,500
                                                       $3,104,000       $1,026,500
Accounts payable                                $ 45,000          $ 37,500
Salaries and taxes payable                     450,000              46,000
Notes payable                                     500,000                450,000
Common stock                                       250,000                60,000
Additional paid-in capital                          950,000               106,500
Retained earnings                                  909,000                   326,500
                                                      $3,104,000             $1,026,500

Problem 1: Compute consolidated inventory.

Select one:

A. $604,000
B. $254,000
C. $ 21,000
D. $529,000