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Analysis of Balance Sheet

On January 1, 2004, Polk Corporation and Strass Corporation had condensed balance sheets as follows:

Polk Strass
Current Assets 70,000 20,000
Non current Assets 90,000 40,000
Total Assets 160,000 60,000
Current Liabilities 30,000 10,000
Long Term Debt 50,000 0
Shareholders Equity 80,000 50,000
Total Liabilty & Owners Equity 160,000 60,000

On January 2, 2004, Polk borrowed $60,000 and used the proceeds to purchase 90 percent of the outstanding common shares of Strass. This debt is payable in 10 equal annual principal payments, plus interest, beginning December 31, 2004. The excess cost 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, 2004,

8. Current assets should be:
a. $99,000
b. $96,000
c. $90,000
d. $79,000

9. Noncurrent assets
a. $130,000
b. $134,000
c. $136,000
d. $140,000

10. Current liabilities
a. $50,000
b. $46,000
c. $40,000
d. $30,000

11. Noncurrent liabilities, including noncontrolling interest
a. $115,000
b. $109,000
c. $104,000
d. $55,000

12. Stockholders' equity
a. $80,000
b. $85,000
c. $90,000
d. $130,000

Solution Preview

8. Current assets should be:
a. $99,000
b. $96,000 (sum of their current assets + plus excess cost since both inventory and goodwill form a part of current assets)
c. $90,000
d. ...

Solution Summary

The solution provides an analysis of a balance sheet for Polk and Stress Corporation.

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