On December 31,20X6,the Statements of Financial Position of the Power

question 25

Essay

On December 31,20X6,the statements of financial position of the Power Company and the Pro Company are as follows: (in 000s)
Power Company has 100,000 shares of common stock outstanding.Pro Company has 45,000 shares outstanding.On January 1,20X7 Power issued an additional 90,000 shares of common stock in exchange for all the net assets of Pro.All assets and liabilities have book value equal to fair values,except as noted.In addition,Pro has a patent that has an appraised fair value of $450.
Market value of the new shares issued was $95 per share at the date of acquisition.
Required:
a.What is the amount of goodwill to be recorded for this business combination? Prepare the journal entry that Power would record on January 1,20X7 related to this acquisition.In this case,who are the shareholders and their percentage holdings on January 1,20X7? Prepare the statement of financial position for Power as at January 1,20X7.
b.How would your answer differ if Power had purchased the shares rather than the net assets of Pro Company? In this case,who are the shareholders and their percentage holdings on January 1,20X7?

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Definitions:

Discretionary Policy

This involves government policies, like fiscal and monetary policy decisions, that are deliberately formulated and applied in response to economic conditions to manage aggregate demand.

Economic Fluctuations

Variations in the level of economic activity in a country over a period of time, characterized by periods of boom and recession.

Fiscal Policy

The use of government spending and taxation levels to influence the economy, aiming at managing economic fluctuations, controlling inflation, and stimulating economic growth.

Tax Cut

A reduction in the amount of taxes imposed by a government, often aimed at stimulating economic growth or achieving political goals.