Question
Chaney acquires 100% of the voting shares of Roberts on January 1, 2010 in a transaction structured as an acquisiton. Assume that using the acquisiton
Chaney acquires 100% of the voting shares of Roberts on January 1, 2010 in a transaction structured as an acquisiton. Assume that using the acquisiton method, goodwill of $2,000,000 resulted. in addition to the initial payment to Roberts shareholders, Chaney agrees that if in 2 years, Roberts earnigs increase by 40%, Chaney will pay an additional $500,000 to Roberts shareholders. At the date of acquisiton, the probability of meeting this earnings target is viewed as 70%.
a, prepare the journal entry to be recorded by Chaney on January 1, 2010 (you may ignore the time value of money)
b, Assume that at the end of 2012, Roberts earnings have increased by 50%. what entry is recorded by Chaney at that tiem.
c, Assume that at the end of 2012, Roberts earnings have increased by 30%. what entry is recorded by Chaney at that time.
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