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Big Guy Inc.purchased 80% of the outstanding voting shares of Humble Corp.for $360,000 on July 1,2001.On that date,Humble Corp had Common Stock and Retained Earnings worth $180,000 and $90,000,respectively.The Equipment had a remaining useful life of 5 years from the date of acquisition.Humble's Bonds mature on July 1,2011.Both companies use straight line amortization,and no salvage value is assumed for assets.The trademark is assumed to have an indefinite useful life.
Goodwill is tested annually for impairment.The Balance Sheets of Both Companies,as well as Humble's Fair Market Values on the date of acquisition are disclosed below: The following are the Financial Statements for both companies for the fiscal year ended July 1,2004:
Income Statements: An impairment test conducted in September 2002 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded)Both companies use a FIFO system,and Humble's entire inventory on the date of acquisition was sold during the following year.During 2004,Humble Inc borrowed $20,000 in Cash from Big Guy Inc.interest free to finance its operations.Big Guy uses the Equity Method to account for its investment in Humble Corp.Assume that the entity method applies.
-The amount of current liabilities appearing on Big Guy's Consolidated Balance Sheet as at July 1,2004 would be:
A)$682,000
B)$662,000
C)$630,000
D)$350,000

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The following information pertains to questions 
Big Guy Inc.purchased 80% of the outstanding voting shares of Humble Corp.for $360,000 on July 1,2001.On that date,Humble Corp had Common Stock and Retained Earnings worth $180,000 and $90,000,respectively.The Equipment had a remaining useful life of 5 years from the date of acquisition.Humble's Bonds mature on July 1,2011.Both companies use straight line amortization,and no salvage value is assumed for assets.The trademark is assumed to have an indefinite useful life.
Goodwill is tested annually for impairment.The Balance Sheets of Both Companies,as well as Humble's Fair Market Values on the date of acquisition are disclosed below:  The following are the Financial Statements for both companies for the fiscal year ended July 1,2004:
Income Statements:   An impairment test conducted in September 2002 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded)Both companies use a FIFO system,and Humble's entire inventory on the date of acquisition was sold during the following year.During 2004,Humble Inc borrowed $20,000 in Cash from Big Guy Inc.interest free to finance its operations.Big Guy uses the Equity Method to account for its investment in Humble Corp.Assume that the entity method applies.
-The amount of current liabilities appearing on Big Guy's Consolidated Balance Sheet as at July 1,2004 would be:
A)$682,000 
B)$662,000 
C)$630,000 
D)$350,000

Quizplus · Accepted Answer

To determine the current liabilities appearing on Big Guy's Consolidated Balance Sheet as at July 1, 2004, we need to add up the current liabilities of both Big Guy and Humble as of that date.

Current liabilities of Big Guy:
Accounts payable = $143,000
Notes payable = $180,000

Total current liabilities of Big Guy = $323,000

Current liabilities of Humble:
Accounts payable = $110,000
Notes payable = $110,000
Bonds payable (current portion) = $119,000
Interest payable = $1000

Total current liabilities of Humble = $340,000

Therefore, total current liabilities appearing on Big Guy's Consolidated Balance Sheet as at July 1, 2004 = $323,000 + $340,000 = $663,000, which is closest to option B ($662,000).

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