Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Asset Purchase, Cash LO 6 P Company acquired the assets and assumed the liabilities of S Company on January 1, 2018, for $510,000 when S

Asset Purchase, Cash LO 6 P Company acquired the assets and assumed the liabilities of S Company on January 1, 2018, for $510,000 when S Companys balance sheet was as follows:

Cash Receivables Inventory Land Plant and equipment (net)

Total

$ 96,000 55,200 110,400 169,200 466,800

$897,600

$ 44,400 480,000 120,000 253,200

$897,600

S COMPANY Balance Sheet January 1, 2018

Accounts payable Bonds payable, 10%, due 12/31/2023, Par Common stock, $2 par value Retained earnings

Total

Exercise 2-5

Fair values of S Companys assets and liabilities were equal to their book values except for the following:

  1. Inventory has a fair value of $126,000.

  2. Land has a fair value of $198,000.

3. The bonds pay interest semiannually on June 30 and December 31. The current yield rate

on bonds of similar risk is 8%.

Required:

Prepare the journal entry on P Companys books to record the acquisition of the assets and assump- tion of the liabilities of S Company.

Asset Purchase, Contingent Consideration as a Liability LO 7 Pritano Company acquired all the net assets of Succo Company on December 31, 2018, for $2,160,000 cash. The balance sheet of Succo Company immediately prior to the acquisition showed:

Book value

Current assets $ 960,000 Plant and equipment 1,080,000

Total $2,040,000

Fair value

$ 960,000

1,440,000 $2,400,000 $ 216,000

Liabilities Common stock Other contributed capital Retained earnings

Total

$ 180,000 480,000 600,000 780,000

$2,040,000

Exercises

69

As part of the negotiations, Pritano agreed to pay the stockholders of Succo $360,000 cash if the post-combination earnings of Pritano averaged $2,160,000 or more per year over the next two years. The estimated fair value of the contingent consideration was $144,000 on the date of the acquisition.

Required:

  1. Prepare the journal entries on the books of Pritano to record the acquisition on Decem- ber 31, 2018.

  2. At the end of 2019, the estimated fair value of the contingent consideration increased to $200,000. Prepare the journal entry to record the change in the fair value of the contingent consideration, if needed.

  3. In 2020, the earnings did not meet the earnout target and the estimated fair value of the contingent consideration was zero. Prepare the journal entry to record the change in the fair value of the contingent consideration.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Accounting

Authors: Susan Hamlen

5th Edition

1618534246, 9781618534248

More Books

Students also viewed these Accounting questions

Question

16. What makes them unique? (special features of the group)

Answered: 1 week ago