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

Question

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

Quizplus · Accepted Answer

The $240,000 borrowed by Pell to purchase Sand's common stock should be recorded under noncurrent liabilities since it's payable in 10 equal annual payments, starting December 30, 2016. Thus, Pell's noncurrent liabilities are increased by $240,000. However, there is a difference between the purchase price and book value (implied value) of the acquired company, which relates to land. This difference is not a liability and should be recorded as an increase in property, plant, and equipment or investment in the subsidiary, depending on the accounting method used. Therefore, the noncurrent liabilities on Pell's January 2, 2016 consolidated balance sheet should be $416,000 ($176,000 + $240,000).

On January 1,2016,Pell Company and Sand Company Had Condensed Balance