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:

Due Date

The final day an invoice is to be paid. After that day the buyer may be charged interest. Also, the date by which a loan is to be repaid.

Remittance

Amount that a buyer actually pays after deducting a cash discount.

Discount Period

A certain number of days after the invoice date, during which a buyer may receive a cash discount. The time between a note’s discount date and its maturity date.

Trade Discount

A reduction in price given by a seller to a buyer, usually based on the quantity purchased or agreed upon terms, not reflected in the invoice amount.