Question

On January 1, acquired 70 percent of common stock for $210,000 cash. The fair value of the noncontrolling interest at that date was determined to be $90,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:

Gulliver Corp. Sea-Gull Corp.
Cash $60,000 $20,000
Accounts Receivable 80,000 30,000
Inventory 90,000 40,000
Land 100,000 40,000
Buildings and Equipment 200,000 150,000
Less: Accumulated Depreciation (80,000) (50,000)
Investment in Sea-Gull Corp. 160,000
Total Assets $610,000 $230,000
Accounts Payable $110,000 $30,000
Bonds Payable 95,000 40,000
Common Stock 200,000 40,000
Retained Earnings 205,000 120,000
Total Liabilities and Equity $610,000 $230,000

At the date of the business combination, the book values of Sea-Gull's net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.

Based on the preceding information, what amount of total inventory will be reported in the consolidated balance sheet prepared immediately after the business combination?

a. $130,000
b. $135,000
c. $90,000
d. $45,000

Answer 1

Gulliver Corp. and Sea-Gull Corp.

Amount of Inventory in the consolidated Balance Sheet, immediately after the business combination:

b. $135,000

Step-by-step explanation:

Inventory:

Gulliver Corp. = $90,000

Sea-Gull Corp. = 45,000

Total = $135,000

In consolidated financial statements, assets and liabilities are recognized based on their fair values. The procedure is to add such assets and liabilities together, line item by line item, in the consolidated financial statements. It is mainly equity interests and investments in the subsidiary by the investor entity that are eliminated.