On January 1, year 1, Polk Corp. and Strass Corp. had condensed balance sheets as follows:

	Polk	Strass
Current assets	$ 70,000	$ 20,000
Noncurrent assets	90,000	40,000
Total assets	$160,000	$60,000
Current liabilities	$ 30,000	$10,000
Long-term debt	50,000	--
Stockholders' equity	80,000	50,000
Total liabilities and stockholders' equity	$160,000	$60,000

On January 2, year 1, Polk borrowed $60,000 and used the proceeds to purchase 90% of the outstanding common shares of Strass. This debt is payable in ten equal annual principal payments, plus interest, beginning December 30, year 1. The excess cost of the investment over Strass' book value of acquired net assets should be allocated 60% to inventory and 40% to goodwill. On January 1, year 1, the fair value of Polk shares held by noncontrolling parties was $10,000.

Noncurrent liabilities should be

	$115,000
	$109,000
	$104,000
	$ 55,000

This Answer is Correct (Answer is C, $104,000)

In the consolidated balance sheet, the parent company's "investment in subsidiary" account should be eliminated and replaced by the assets and liabilities of the subsidiary. Therefore, the consolidated balance sheet should include the noncurrent liabilities of both companies, plus the noncurrent portion of the debt incurred on 1/2/Y1 ($60,000 − $6,000 = $54,000).

Noncurrent liabilities—Polk	$ 50,000
Noncurrent liabilities—Strass	0
Noncurrent portion of new debt	54,000
Total	$104,000

Can please explain this question and all calculations step by step in a very easy way so I can understand regardless of the explanation above because I really don't understand it? Also where do they get $60,000 and $6,000? which when subtracted equals the noncurrent portion of the debt incurred on 1/2/Y1 ($60,000 − $6,000 = $54,000)?

Answer rating: 100% (QA)

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