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

question 39

Essay

On December 31, 20X6, the statements of financial position of the Power Company and the Pro Company are as follows: (in 000s)
$\begin{array}{lll}&\text { Power } & \text { Pro } & \text { (FV) }\\\text { Cash } & \$ 500 & \$ 800 \\\text { Accounts receivable } & 1,500 & 1,700 \\\text { Inventories } & 2,000 & 1,500 \\\text { Property, plant, and equipment (net) } & \underline{2,500} & \underline{4,000}&\$4,300 \\\text { Total assets } &\underline{ \$ 6,500 }& \underline{\$ 8,000}\end{array}$ $$\begin{array} { l l l } \text { Current liabilities } & \$ 700 & \$ 400 \\\text { Long-term liabilities } & 8 0 0 & 500&\$550 \\\text { Common shares } & 2,500 & 1,000 \\\text { Contributed suplus } &8 0 0& 1,500 \\\text { Retained earnings } & \underline { 1,700 } & \underline { 4,600 } \\\text { Total equities } & \underline { \$ 6, 500 }& \underline { \$8 , 000}\end{array}$$ 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 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 what are 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 what are their percentage holdings on January 1, 20X7?

• 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 what are 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 what are their percentage holdings on January 1, 20X7?

---

Definitions:

Vertical Axis

In graphing, the y-axis, which is typically used to represent the range of values of the variable being measured.

Horizontal Axis

In graphing, the horizontal line along which the values of one variable are plotted, often representing the independent variable or time.

Multiply Controlled Behaviors

A term used to describe a behavior serving different purposes for a student (e.g., making animal noises to escape a boring task and to get attention from peers).

Transfer of Function

The process by which a response or behavior developed in one context becomes applicable or relevant in another context.