On January 2 Parma borrowed 60000 and used the proceeds to p

On January 2, Parma borrowed $60,000 and used the proceeds to purchase 90% of the outstanding common shares of Seville. Parma had no prior equity interest in Seville. Ten equal principal and interest payments begin December 30. The excess of the implied fair value of Seville over the carrying amount of its identifiable net assets should be assigned 60% to inventory and 40% to goodwill. Moreover, the fair value of the noncontrolling interest (NCI) is 10% of the implied fair value of the acquiree. The following are the balance sheets of Parma and Seville on January 1: Parma Seville $ 70,000 $20,000 90,000 40,000 $160,000 $60,000 Current assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Equity S 30,000 $10,000 50,000 80,000 50,000 Total liabilities and equity160,000S n Parmai\'s January 2 consolidated balance sheet, the sum of the noncurrent labities and the NCI equal O A. $50,000 O B. $110,667 O C. $104,000 O D. $116,667

Solution

1

Answer: B. $110,667

Working notes for the answer:

The sum of the noncurrent liabilities and the non controlling interest NCI.

Consolidated noncurrent liabilities include the noncurrent portion of the debt issued by Parma to finance the acquisition ($60,000 – $6,000 = $54,000).

Thus, reported noncurrent liabilities equal $104,000.

Noncurrent liabilities of Parma

50000

Noncurrent component of new debt

54000

Consolidated noncurrent liabilities

104000

The implied fair value of the subsidiary is $66,667 ($60,000 cash paid by the parent ÷ 90%), and the NCI is $6,667 ($66,667 × 10%).

The sum of the noncurrent liabilities and the NCI is therefore

= $110,667 ($104,000 + $6,667)

________________________________________________________

2

Answer: C. $38,500

Working notes for the answer:

The May 31 bank statement cash balance is calculated as follows:

May 31 cash balance = (cash balance per books) – (service charges) – (check recording error) + (outstanding checks) – (deposit in transit)

May 31 cash balance

= $40,500 – $100 – $900 + $1,500 – $2,500

= $38,500

Noncurrent liabilities of Parma	50000
Noncurrent component of new debt	54000
Consolidated noncurrent liabilities	104000