Problem

Multiple-Choice Questions on Balance Sheet ConsolidationPower Corporation acquired 70 perc...

Multiple-Choice Questions on Balance Sheet Consolidation

Power Corporation acquired 70 percent of Silk Corporation’s common stock on December 31, 20X2. Balance sheet data for the two companies immediately following the acquisition follow:

Item

Power Corporation

Silk Corporation

Cash

$ 44,000

$ 30,000

Accounts Receivable

110,000

45,000

Inventory

130,000

70,000

Land

80,000

25,000

Buildings and Equipment

500,000

400,000

Less: Accumulated Depreciation

(223,000)

(165,000)

Investment in Silk Corporation Stock

150,500

 

Total Assets

$ 791,500

$405,000

Accounts Payable

$ 61,500

$ 28,000

Taxes Payable

95,000

37,000

Bonds Payable

280,000

200,000

Common Stock

150,000

50,000

Retained Earnings

205,000

90,000

Total Liabilities and Stockholders’ Equity

$ 791,500

$405,000

At the date of the business combination, the book values of Silk’s net assets and liabilities approximated fair value except for inventory, which had a fair value of $85,000, and land, which had a fair value of $45,000. The fair value of the noncontrolling interest was $64,500 on December 31, 20X2.

Required

For each question below, indicate the appropriate total that should appear in the consolidated balance sheet prepared immediately after the business combination.

1. What amount of inventory will be reported?

a. $179,000.

b. $200,000.

c. $210,500.

d. $215,000.


2. What amount of goodwill will be reported?

a. $0.

b. $28,000.

c. $40,000.

d. $52,000.


3. What amount of total assets will be reported?

a. $1,081,000.

b. $1,121,000.

c. $1,196,500.

d. $1,231,500.


4. What amount of total liabilities will be reported?

a. $265,000.

b. $436,500.

c. $622,000.

d. $701,500.


5. What amount will be reported as noncontrolling interest?

a. $42,000.

b. $52,500.

c. $60,900.

d. $64,500.


6. What amount of consolidated retained earnings will be reported?

a. $295,000.

b. $268,000.

c. $232,000.

d. $205,000.


7. What amount of total stockholders’ equity will be reported?

a. $355,000.

b. $397,000.

c. $419,500.

d. $495,000.

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