On January 1, 2010, Palk Corp. and Spraz Corp. had condensed balance sheets as follows: On January 2, 2010, Palk borrowed the entire $84,000 it needed to acquire 80% of the outstanding common shares of Spraz. The loan was to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2010. The excess consideration transferred over the underlying book value of the acquired net assets was allocated 60% to inventory and 40% to goodwill.
-What is consolidated stockholders' equity at January 2, 2010?
A) $112,000.
B) $133,000.
C) $168,000.
D) $182,000.
E) $203,000.

Question

On January 1, 2010, Palk Corp. and Spraz Corp. had condensed balance sheets as follows:  On January 2, 2010, Palk borrowed the entire $84,000 it needed to acquire 80% of the outstanding common shares of Spraz. The loan was to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2010. The excess consideration transferred over the underlying book value of the acquired net assets was allocated 60% to inventory and 40% to goodwill.
-What is consolidated stockholders' equity at January 2, 2010?
A) $112,000. 
B) $133,000. 
C) $168,000. 
D) $182,000. 
E) $203,000.

Quizplus · Accepted Answer

To calculate consolidated stockholders' equity, we need to first calculate the book value of Spraz's net assets.

Book value of net assets = Total Assets - Total Liabilities
Book value of net assets = $160,000 - $80,000 (from Spraz's balance sheet)
Book value of net assets = $80,000

Palk Corp. acquired 80% of Spraz's outstanding shares, so we need to calculate the excess consideration transferred over the underlying book value of the acquired net assets.

Excess consideration = Total consideration transferred - Book value of net assets
Excess consideration = ($84,000 * 80%) - $80,000
Excess consideration = $9,600

This excess consideration is allocated 60% to inventory and 40% to goodwill.

Inventory = Excess consideration * 60% 
Inventory = $9,600 * 60% 
Inventory = $5,760

Goodwill = Excess consideration * 40%
Goodwill = $9,600 * 40%
Goodwill = $3,840

To calculate consolidated stockholders' equity, we need to add Palk Corp.'s and Spraz Corp.'s stockholders' equity together, as well as add the excess consideration allocated to inventory and goodwill.

Consolidated stockholders' equity = Palk Corp.'s stockholders' equity + Spraz Corp.'s stockholders' equity + Inventory + Goodwill
Consolidated stockholders' equity = ($80,000 + $60,000) + ($40,000 + $20,000) + $5,760 + $3,840
Consolidated stockholders' equity = $112,000 + $60,000 + $5,760 + $3,840
Consolidated stockholders' equity = $181,600

Therefore, the answer is B) $133,000.