On 1 July 2019, Lowry Ltd acquired all of the assets and liabilities of Powell Ltd which constitute a business in accordance with AASB 3 'Business Combinations'. In exchange for these assets and liabilities, Lowry Ltd agreed to pay Powell Ltd $80,000 in cash plus 150,000 fully paid shares in Lowry Ltd.

The fair value of the shares of Lowry Ltd at the date of issue was $2.20. Costs of issuing these shares amounted to $3,000. Legal costs associated with the acquisition of Powell Ltd amounted to $2,500.

The assets and liabilities of Powell Ltd at 1 July 2019 were as follows:

Carrying amountFair value

Assets

Cash$20 000$20 000

Accounts receivable26 00026 000

Inventory58 00072 000

Equipment 280 000260 000

Accumulated depreciation - equipment(70 000)

Liabilities

Accounts payable(30 000)(30 000)

Additional information:

The assets of Powell Ltd did not include a trademark that was valued by Lowry Ltd at $50,000.

Powell Ltd had not recorded a legal claim that could potentially result in the company paying damages to its customers. Lowry Ltd estimated the fair value of this contingent liability to be $15,000.

Required:

Prepare the journal entries in the records of Lowry Ltd at 1 July 2019 to account for the acquisition of Powell Ltd. (5 marks)