Question

In: Accounting

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

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

Park Strand
Current assets $ 74,500 $ 16,050
Noncurrent assets 92,250 46,200
Total assets $ 166,750 $ 62,250
Current liabilities $ 32,000 $ 12,250
Long-term debt 51,750
Stockholders' equity 83,000 50,000
Total liabilities and equities $ 166,750 $ 62,250

On January 2, Park borrowed $66,000 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 $66,000 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 non current assets?

Solutions

Expert Solution

On a consolidated Balance sheet, each item will be added line by line.

Park and Strand corporation assets (current and non current both) will be added together in consolidated balance sheet. Only it will be increased by that amount which is allocated to Goodwill (non current) & Inventory (current) at the time of purchase of 80% common shares of Strand Corporation. This Goodwill & inventory amount will be $15,600 & $10,400 (calculation attached)

Hence in a Consolidated Balance Sheet,

1) Total value of Current Assets = 74,500+16,050+15,600 = 106,150

2) Total value of Non Current Assets = 92,250+46,200+10,400 = 148,850

Complete consolidated balance sheet is attached for better understanding.

Thanks,

ekkarill92 answered 7 months ago
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