Question

Need an explanation of why the answer is B, thank you!

On January 1, 2016, Pell Company and Sand Company had condensed balance sheets as follows:

	Pell		Sand
Current assets	$ 280,000		$80,000
Noncurrent assets	360,000		160,000
Total assets	$640,000		$240,000
Current liabilities	$ 120,000		$40,000
Long-term debt	200,000		-0-
Stockholders' equity	320,000		200,000
Total liabilities & stockholders' equity	$640,000		$240,000

On January 2, 2016 Pell borrowed $240,000 and used the proceeds to purchase 90% of the outstanding common stock of Sand. This debt is payable in 10 equal annual principal payments, plus interest, starting December 30, 2016. Any difference between book value and the value implied by the purchase price relates to land.

    

On Pell's January 2, 2016 consolidated balance sheet, noncurrent liabilities should be:

a) $440,000.

b) $416,000.

c) $240,000.

d) $216,000.

Answer: b

Answer 1

Answer: b) $41,6000

Explanation:

On January 2, 2016 Pell borrowed $240,000 and This debt is payable in 10 equal annual principal payments.

Every year installment amount is $ 24,000 ($240,000 ÷ 10 installments)

$24,000 is Current liability because first installment is due in next year and

$216,000 is non-current liability

Thus, From the Jan 2,2016 borrowings

Current liability	$24,000
Non Current liability [$24,000 x 9 installments]	$216,000

Non-current liabilities as of January 2,2016 Consolidated balance sheet:

	Pell	Sand	Consolidated balance
Non-Current liabilities:
On Jan 1,2016	$200,000	$0	$200,000
On Jan 2,2016	$216,000	$0	$216,000
Total			$416,000