34) On December 31, 20X6, the statements of financial position of the Power Company and the Pro Company are as follows: (in 000s)
PowerPro(FV)
Cash$ 500$ 800
Accounts Receivable1,5001,700
Inventories2,0001,500
Capital assets (net)2,5004,000$4,300
Total Assets$6,500$8,000
Current liabilities$ 700$ 400
Long term liabilities800500$ 550
Common shares 2,5001,000
Contributed surplus8001,500
Retained earnings1,7004,600
Total Equities$6,500$8,000
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?
