Pham Company acquired the assets (except for cash) and assumed the liabilities of Senn Company on January 1, 2024, paying $720,000 cash. Senn Company’s December 31, 2023, balance sheet, reflecting both book values and fair values, showed:

As part of the negotiations, Pham Company agreed to pay the former stockholders of Senn Company $200,000 cash if the post- combination earnings of the combined company (Pham) reached certain levels during 2024 and 2025. The fair value of contingent consideration was estimated to be $100,000 on the date of acquisition.

Required:

A. Record the journal entry on the books of Pham Company to record the acquisition on January 1, 2024.

B. During 2024, the likelihood of meeting the post combination earnings goal increased. As a result, at the end of 2024, the estimated fair value of the contingent consideration increased to $120,000. Prepare any journal entry needed to account for the change in the fair value of contingent consideration.

C. During 2025, the likelihood of meeting the post combination earnings goal significantly decreased and the contingent consideration target was not met. Prepare any journal entry needed to account for the change in the fair value of contingent consideration.

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Accounts receivable (net) Inventory Land Buildings (net) Equipment (net) Total Accounts payable Note payable Common stock, $2 par value Other contributed capital Retained earnings Total Book Value $ 72,000 86,000 110,000 369,000 237,000 $874,000 $ 83,000 180,000 153,000 229,000 229,000 $874,000 Fair Value $ 65,000 99,000 162,000 450,000 288,000 $ 1,064,000 $ 83,000 180,000