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

question 33

Essay

On December 31, 20X6, the statements of financial position of the Power Company and the Pro Company are as follows: (in 000s)
$\begin{array}{lll}&\text { Power } & \text { Pro } & \text { (FV) }\\\text { Cash } & \$ 500 & \$ 800 \\\text { Accounts receivable } & 1,500 & 1,700 \\\text { Inventories } & 2,000 & 1,500 \\\text { Property, plant, and equipment (net) } & \underline{2,500} & \underline{4,000}&\$4,300 \\\text { Total assets } &\underline{ \$ 6,500 }& \underline{\$ 8,000}\end{array}$ $$\begin{array} { l l l } \text { Current liabilities } & \$ 700 & \$ 400 \\\text { Long-term liabilities } & 8 0 0 & 500 \\\text { Common shares } & 2,500 & 1,000 \\\text { Contributed surplus } & 8 0 0 & 1,500 \\\text { Retained earnings } & \underline { 1,700 } & \underline { 4,600 } \\\text { Total liabilities and equities } & \underline { \$6 , 500 }& \underline { \$ 18,000}\end{array}$$ 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 outstanding shares of Pro. All assets and liabilities have book values equal to fair values, except as noted above. 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.
$$\text {Required: }$$ 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. Prepare the consolidated statement of financial position at January 1, 20X7.

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Definitions:

Manufacturing Overhead

The indirect factory-related costs that are incurred when producing a product, including costs related to management, utilities, and equipment depreciation.

Direct Labor-Hours

The total hours worked by employees who are directly involved in the manufacturing process and whose work can be easily traced to the product.

Manufacturing Overhead

All production costs other than direct labor and direct materials, which are incurred in the manufacturing process.

Direct Labor-Hours

An accounting term indicating the hours of work performed by employees directly involved in the creation of goods or services.