Can someone explain why the answer is 90,000 and what's the calculation? The answer doesn't tell me how they came up with all these numbers. I tried to search in the forum but it doesn't have the search function so I couldn't. TIA
On January 1, Year 1, Polk Corp. and Strass Corp. had condensed balance sheets as follows:
Polk Strass
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 —
Stockholders' equity 80,000 50,000
Total liabilities and stockholders' equity $160,000 $60,000
On January 2, Year 1, Polk borrowed $60,000 and used the proceeds to purchase 90% of the outstanding common shares of Strass. This debt is payable in ten equal annual principal payments, plus interest, beginning December 30, Year 1. The excess cost of the investment over Strass' book value of acquired net assets should be allocated 60% to inventory and 40% to goodwill. On January 1, Year 1, the fair value of Strass shares held by noncontrolling parties was $10,000.
Stockholders' equity including noncontrolling interests should be
$ 80,000
$ 85,000
$ 90,000
$130,000
This Answer is Incorrect
In the consolidated balance sheet, neither the parent company's investment account nor the subsidiary's stockholders' equity is reported. These amounts are eliminated in the same journal entry that records the excess of cost over book value. The portion of the subsidiary's stockholders' equity that is not eliminated is reported as noncontrolling interest in the equity section of the consolidated balance sheet. Therefore, the parent's stockholders' equity ($90,000) equals the consolidated stockholders' equity plus the minority interest.
Current assets + Non-current assets = Current liabilities + Non-current liabilities + Stock-holders' equity
$102,000 + $138,000 = $46,000 + $104,000 + $90,000
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