On December 31, 2013, Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to acquire all of the outstanding shares of that company. Goodwin shares had a fair value of $40 per share. Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock issuance costs. Corr's equipment was actually worth $1,400 but its buildings were only valued at $560. Compute the consolidated liabilities at December 31, 2013.

Consolidated liabilities are $760

Explanation:

Please be advised that the liabilities are worth $760 in the context of the question since no other liabilities are reported for either Goodwin. It is assumed that the question is complete and therefore, this answer is given. Lets look at how the answer is computed.

No other information is provided for Goodwin's liabilities except for the information that $600 worth of debt was issued. From this we can infer that Goodwin's standalone libaility position is $600.

Now lets compute Corr's liabilities. $600 was expended by Goodwin in debt along with 30 of its own shares to buy up 100% of equity in Corr (full acquisition by Goodwin). Goodwin's stocks are worth $40, so that means $1200 worth of its own shares were given to the owners of Corr. That means (1200 + 600), $1800 was the cost of acquisition. This money was given to acquire assets worth $1960 belonging to Corr. From this, we can assume that liabilities for Corr are equivalent to the difference between value of assets and the price of acquisition which is equivalent to $160. This is computed using the accounting equation which is Assets = Capital + Liabilities. The fair value of capital is $1600 which is the amount paid by Goodwin. Please note that in this calculation, goodwill is assumed to be nil since no information is provided related to goodwill.

Now, since 100% ownership of Corr is with Goodwin, all the liabilites belong to Goodwin as well. Therefore, the consolidated liability position is Goodwin's liabilities ($600) plus Corr's liabilities ($160) which is equal to $760.