Question

On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows:

	Park				Strand
Current assets	$	92,500			$	31,050
Noncurrent assets		114,500				49,700
Total assets	$	207,000			$	80,750
Current liabilities	$	44,000			$	30,750
Long-term debt		64,000
Stockholders' equity		99,000				50,000
Total liabilities and equities	$	207,000			$	80,750

On January 2, Park borrowed $58,400 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considered proportionate to Strand’s total fair value. The $58,400 debt is payable in 10 equal annual principal payments, plus interest, beginning December 31. The excess fair value of the investment over the underlying book value of the acquired net assets is allocated to inventory (60 percent) and to goodwill (40 percent).

1) On a consolidated balance sheet as of January 2, what should be the amount for current assets?

2) On a consolidated balance sheet as of January 2, what should be the amount for noncurrent assets?

3) On a consolidated balance sheet as of January 2, what should be the amount for current liabilities?

4) On a consolidated balance sheet as of January 2, what should be the amount for noncurrent liabilities?

5)On a consolidated balance sheet as of January 2, what should be the amount for stockholders' equity?

Answer 1

Please find below table useful to compute desired results: -

B i Particulars Amount 2 Fair Value on Acquisition date =58400/0.8 3 Less: Book Value of S =31050+49700-30750 4 Fair Value in Excess of book Value =B2-B3 5 Excess assigned to Inventory =B4*0.6 6 Excess assigned to Goodwill =B4*0.4 7 Current Assets of P 92500 8 Current Assets of S 31050 9 Excess inventory fair value =B5 10 Total current assets =B7+B8+B9 11 Non Current assets of P 114500 12 Non Current assets of S 49700 13 Excess Fair value of goodwill =B6 14 Total non current Assets =B11+B12+B13 15 Current Liabilities of P 44000 16 Current Liabilities of S 30750 17 Short-term portion of loan taken to acquire S 1=58400*1/10 18 Total Current Liabilities =B15+B16+B17 19 Non-current liabilities of P 64000 20 Non-current liabilities of S 21 Long-term portion of loan taken to acquire S =58400*9/10 22 Total non current Liabilities =B19+B20+B21 23 Stockholder's Equity of P 99000 24 Non-controlling interest at fair value =B2*0.2 25 Total Stockholders' equity =B23+B24

End results would be as follows: -

A в 1 Particulars Amount 2 Fair Value on Acquisition date $73,000.00 3 Less: Book Value of S $50,000.00 4 Fair Value in Excess of book Value $23,000.00 5 Excess assigned to Inventory $13,800.000 6 Excess assigned to Goodwill $9,200.00 7 Current Assets of P $92,500.00 8 Current Assets of S $31,050.00 9 Excess inventory fair value $13,800.00 10 Total current assets $137,350.00 11 Non Current assets of P $114,500.00 12 Non Current assets of S $49,700.00 13 Excess Fair value of goodwill $9,200.00 14 Total non current Assets $173,400.00 15 Current Liabilities of P $44.000.000 16 Current Liabilities of S $30.750.00 17 Short-term portion of loan taken to acquire S $5,840.00 18 Total Current Liabilities $80,590.00 19 Non-current liabilities of P $64.000.000 20 Non-current liabilities of S $0.00 21 Long-term portion of loan taken to acquire S | $52,560.000 22 Total non current Liabilities $116,560.00 23 Stockholder's Equity of P $99,000.00 24 Non-controlling interest at fair value $14,600.00 25 Total Stockholders' equity $113,600.00