Calof Inc. acquires $100\%$ of the common shares of Zhang Company on January $1,$ Year $4,$ for the following consideration:

$5,500$ common shares with a market value of $$308,000.$

A contingent payment of $$41,000$ cash on January $1,$ Year $5$ if Zhang generates cash flows from operations of $$11,000$ or m Record the investment in Zhang including any contingent consideration.

Note: Enter debits before credits.

$($b$)$ Prepare adjusting entries relating to the contingent consideration at December $31,$ Year $4.($Enter your answers rounded to the

nearest whole number. If no entry is required for a transaction$/$event$,$ select $"$No journal entry required" in the first account field.$)($c$)$ Indicate what amounts relating to the contingent consideration will appear on the balance sheet at December $31,$ Year $4,$ and how

they will be presented. $($Omit $ sign in your response.$)$

Contingent consideration for earnout

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Contingent consideration for stock price guarantee

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Year $4.$

A payment of sufficient shares of Calof common shares to ensure a total value of $$308,000$ if the price per share is less than $$56$

on January $1,$ Year $5.$

For the cash contingency, Calof estimates that there is a $30\%$ chance that the $$41,000$ payment will be required. For the share

contingency, Calof estimates a $20\%$ probability that the $5,500$ shares issued will have a market value of $$302,500$ on January $1,$ Year

$5,$ and an $80\%$ probability that the market value of the $5,500$ shares will exceed $$308,000.$ Calof uses an interest rate of $4\%$ to

incorporate the time value of money.

In Year $4,$ Zhang exceeds the cash flow from operations threshold of $$11,000,$ thus requiring an additional payment of $$41,000.$ Also,

Calof's stock price had fallen to $$55\mathrm{.}46$ at January $1,$ Year $5.$ Because the acquisition agreement called for a $$308,000$ total value at

January $1,$ Year $5,$ Calof must issue an additional $54$ shares $($ $$2,970$ shortfall$/$ $$55\mathrm{.}46$ per share$)$ to the former owners of Zhang.

Required:

$($a$)$ Prepare Calof's journal entry at January $1,$ Year $4,$ to record the investment in Zhang including any contingent consideration. $($Enter

your answers rounded to the nearest whole number. If no entry is required for a transaction$/$event$,$ select $"$No journal entry

required" in the first account field.$)$

Journal entry worksheet

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Record the investment in Zhang including any contingent consideration.