Question

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

	Park				Strand
Current assets	$	116,000			$	31,300
Noncurrent assets		107,500				49,200
Total assets	$	223,500			$	80,500
Current liabilities	$	52,500			$	30,500
Long-term debt		66,000
Stockholders' equity		105,000				50,000
Total liabilities and equities	$	223,500			$	80,500

On January 2, Park borrowed $70,400 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 $70,400 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).

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

Answer 1

Solution:

Particulars	Amount
fair value on acquisition date ($70,400/80%)	$88,000
Less: Book vallue of Strand ($49,200+$31,300-$30,500)	($50,000)
Fair value in excess of book value	$38,000
Excess assigned to inventory (60% *$38,000)	$22,800
Excess assigned to good will (40% *$38,000)	$15,200
Current assets of P	$116,000
Current assets of S	$31,300
Excess inventory fair value	$22,800
Total current assets	$170,100

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