Asset Purchase, Earnings Contingency Pritano Company acquired all the net assets of Succo Company on December 31, 2003, for $2,160,000 cash. The balance sheet of Succo Company immediately prior to the acquisition showed: LO4 Book Value Fair Value Current Assets $ 960,000 $ 960,000 Plant and Equipment 1,080,000 1,440,000 Total Assets $ 2,040,000 $ 2,400,000 Liabilities $ 180,000 $ 216,000 Common Stock 480,000 Other Contributed Capital 600,000 Retained Earnings 780,000 Total Equities $ 2,040,000 As part of the negotiations, Pritano agreed to pay the stockholders of Succo $360,000 cash if the postcombination earnings of Pritano averaged $2,160,000 or more per year over the next two years.
Required:
A. Prepare the journal entries on the books of Pritano to record the acquisition on December 31, 2003.
B. Assuming the earnings contingency is met, prepare the journal entry on Pritano’s books needed to settle the contingency on December 31, 2005.