Question

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

	Park				Strand
Current assets	$	70,000			$	20,000
Noncurrent assets		90,000				40,000
Total assets	$	160,000			$	60,000
Current liabilities	$	30,000			$	10,000
Long-term debt		50,000				0
Stockholders’ equity		80,000				50,000
Total liabilities and equities	$	160,000			$	60,000

On January 2, Park borrowed $60,000 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 $60,000 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).

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

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

Answer 1

Current Assets:

Acquisition-date fair value ($60,000 ÷ 80%)...................................................... $75,000

Strand's book value ....................................................................................... (50,000)

Fair value in excess of book value ...................................................................... $25,000

Excess assigned to inventory (60%) ................................................$15,000

Excess assigned to goodwill (40%) .................................................$10,000

Park current assets.......................................................................................... $70,000

Strand current assets...................................................................................... 20,000

Excess inventory fair value............................................................................ 15,000

Consolidated current assets............................................................................ $105,000

Non Current Assets:

Park noncurrent assets.................................................................................... $90,000

Strand noncurrent assets................................................................................ 40,000

Excess fair value to goodwill......................................................................... 10,000

Consolidated noncurrent assets...................................................................... $140,000