Holt Corporation is contemplating the acquisition of Sambo Company's net assets on December 31, 2015. It is considering making an offer, which would include a cash payout of $225,000 along with giving 15,000 shares of its $2 par value commone stock that is currently selling for $20 per share. Holt also agrees that it will pay an additional $50,000 on January 1, 2018, if the average net income of Sambo's business unit exceeds $80,000 for 2016 and 2017. The liklihood of reaching that target is extimated to be 60%. The balance sheet of Sambo Company is given below, along with extimated fair values of the net assets to be acquired.

Sambo Company

Balance Sheet

December 31, 2015

Book Value Fair Value Book Value Fair Value

Current assets: Current Liabilities:

Notes receivable $33,000 $33,000 Accounts Payable $63,000 $63,000

Inventory 80,000 80,000 Taxes payable 15,000 15,000

Prepaid expenses 15,000 15,000 Interest payable 3,000 3,000

Total current assets $128,000 $128,000 Total current liabilities $81,000 $81,000

Investments $36,000 $56,000

Fixed assets: Other liabilities:

Land $15,000 $90,000 Bonds payable $250,000 $250,000

Buildings 115,000 170,000 Discount on bonds payable (18,000) (30,000)

Equipment 256,000 250,000

Vehicles 32,000 25,000

Total fixed assets $418,000 $535,000 Total other liabilities $232,000 $220,000

Intangibles: Stockholders' equity:

Franchise $56,000 $70,000 Common Stock $50,000

Paid-in Capital in excess par 200,000

Retained earnings 75,000

Total equity $325,000

total assets $638,000 $788,000 Total liabilities and equity $638,000

1. Do value analysis and prepare the entry on the books of Holt Corporation to record the acquisition of Sambo company.

2. Assume that the net income of the Sambo business unit is $120,000 for 2016. As a result, the likelihood of paying the contingent consideration is believed to be 90%. What, if any, adjusting entry is required as of December 31, 2016?