Hogelucht company paid 465,000 cash for all of the outstanding common stock of Kluinveen Inc., on January 1, 2019. On that date, the subsidiary had a book value of 340,000 (common stock of 200,000 and retained earnings of 140,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a 100,000 fair value. Any remaining excess fair value was considered goodwill.

In negotiating the acquisition price, Hogelucht also promised to pay Kluinveens former owners an additional 50,000 if Kluinveens income exceeded 120,000 total over the first two years after the acquisition. At the acquisition date, Hogelucht estimated the probability-adjusted present value of this contingent consideration at 35,000. On December 31, 2019, based on Kluinveens earnings to date, Hogelucht increased the value of the contingency to 40,000.

During the subsequent two years, Kluinveen reported the following amounts for income and dividends:

Year Net income Dividends

2019 65,000 25,000

2020 75,000 35,000

In keeping with the original acquisition agreement, on December 31, 2020, Hogelucht paid the additional 50,000 performance fee to Kluinveens previous owners.

Question 6

Prepare Hogeluchts entry to record the acquisition of the shares of its Kluinveen subsidiary.

Question 7

Prepare Hogeluchts entries at the end of 2019 and 2020 to adjust its contingent performance obligation for changes in fair value and the payment on December 31, 2020.

Question 8

Prepare consolidation worksheet entries (eliminations/adjustments) as of December 31, 2020, assuming that Hogelucht has applied the initial value method (Note: It is not necessary to prepare the consolidation worksheet, just the eliminations will do).