Branson paid $591,900 cash for all of the outstanding common stock of Wolfpack, Inc., on January 1, 2017. On that date, the subsidiary had a book value of $406,000 (common stock of $200,000 and retained earnings of $206,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a $173,000 fair value. Any remaining excess fair value was considered goodwill. In negotiating the acquisition price, Branson also promised to pay Wolfpack's former owners an additional $43,000 if Wolfpack's income exceeded $140,000 total over the first two years after the acquisition. At the acquisition date, Branson estimated the probability-adjusted present value of this contingent consideration at $30,100. On December 31, 2017, based on Wolfpack's earnings to date, Branson increased the value of the contingency to $34,400. During the subsequent two years, Wolfpack reported the following amounts for income and dividends: Dividends Declared Net Income $20,000 30,000 $74,300 84,300 2017 2018 In keeping with the original acquisition agreement, on December 31, 2018, Branson paid the additional $43,000 performance fee to Wolfpack's previous owners. Prepare each of the following: a. Branson's entry to record the acquisition of the shares of its Wolfpack subsidiary. b. Branson's entries at the end of 2017 and 2018 to adjust its contingent performance obligation for changes in fair value and the December 31, 2018, payment c. Prepare consolidation worksheet entries as of December 31, 2018, assuming that Branson has applied the equity method. d. Prepare consolidation worksheet entries as of December 31, 2018, assuming that Branson has applied the initial value method. Required C Required A Required B Required D Prepare consolidation worksheet entries as of December 31, 2018, assuming that Branson has applied the equity method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Event Accounts Debit Credit Common stock - Wolfpack 200,000 1 1 Retained earnings - Wolfpack 260,300 Investment in Wolfpack 460,300 Royalty agreements 2 2 155,700 Goodwill 70,000 Investment in Wolfpack 223,300 Equity earnings of Wolfpack 3 3 84,300 Investment in Wolfpack 74,300 Investment in Wolfpack 4 4 30,000 Dividends declared 30,000 transaction/event, select "No journal entry required" in the first account field.) No Event Accounts Debit Credit Investment in Wolfpack 1 1 Retained earnings Branson Common stock - Wolfpack 2 2 200,000 Retained earnings - Wolfpack Investment in Wolfpack |Royalty agreements 3 155,700 Goodwill Investment in Wolfpack 216,000
