Reference no: EM133091407

Question - On January 1, 20X5, Power Company purchases 80% of the outstanding shares of the Spencer Company for $2,500,000 in cash. On that date, Spencer Company had No Par Common Stock of $2,000,000 and Retained Earnings of $1,000,000. On January 1, 20X5, all of Spencer's identifiable assets and liabilities had fair values that were equal to their carrying values except for:

A building that had an estimated FV of $600,000 less than its carrying value; its remaining useful life was estimated to be 10 years; and

A long-term liability with a FV of $500,000 less than its carrying value; the liability matures on December 31, 20X12.

Additional Information

In each of the years since Power acquired control over Spencer, the goodwill arising on this business combination transaction has been tested for impairment. No impairment was found in any of the years since acquisition.

The book value (BV) of Building for Power and Spencer at date of acquisition was $1,000,000 and $2,000,000 respectively. The BV of Power's Common Shares just before the date of acquisition was $5,000,000.

For internal recording, Power accounts for its investment in Spencer on the cost basis.

During 20X9, Power declared and paid $250,000 in dividends, while Spencer declared and paid $40,000 in dividends. Profit for the Year 20X9 is $740,000 for Power and $248,000 for Spencer. Finally, the balance of Spencer's RE as of December 31, 20X9 is $2,300,000.

On September 1, 20X9, Spencer sold a parcel of land to Power for $133,000 that it had originally purchased for $65,000. Land has not been resold by Power.

Intercompany inventory transfers are priced to provide Power with 30% gross profit margin (on sales price) and Spencer with 40% gross profit.

During 20X8, the following intercompany inventory sales occurred:

Power sold $500,000 of merchandise to Spencer, $100,000 of which is in Spencer's inventory at 20X8 year-end.

Spencer sold $300,000 of merchandise to Power, $70,000 of which is in Power's inventory at the end of 20X8.

During 20X9, the following intercompany inventory sales occurred:

Power sold $400,000 of merchandise to Spencer, $90,000 of which is in Spencer's inventory at 20X9 year-end.

Spencer sold $250,000 of merchandise to Power, $60,000 of which is in Power's inventory at the end of 20X9.

Both companies are using the straight-line method for all depreciation and amortization.

Required - What amount would Power Company report on its consolidated SFP at date of acquisition for NCI under the Full Goodwill Approach?