On December 31, Year 1, Parent issued 50,000 shares of its common stock ($6 par; $20 fair market value) in exchange for 100% of the common stock of Subsidiary. In addition, Parent agreed to pay Sub shareholders an additional $150,000 if Sub meets certain profitability goals by the end of the following year. The estimated present value of its probability adjusted expected payment for the contingency is $71,500. Parent paid $18,000 accounting fees and $10,000 stock issuance costs to complete the acquisition The balance sheet accounts on the books of both companies before the transaction occurred are shown below. Fair market values of Sub's assets and liabilities are shown as well. In addition, Sub has a research and development project underway with an assessed fair value of $100,000. Sub Fair Values 85,000 180,000 600,000 200,000 Balance Sheet - Before purchase recorded Parent Cash 110,000 Receivables & Inventory 750,000 Property, Plant, & Equipment 1,400,000 Trademark 300,000 Total Assets 2,560,000 Liabilities 500,000 Common Stock 400,000 Additional Paid-In Capital 475,000 Retained Earnings 12/31 1.185.000 Total Liabilities & Equity 2,560,000 Sub 85,000 190,000 450,000 160.000 885,000 180,000 200,000 70,000 435.000 885,000 180,000 On December 31, Year 1, Parent issued 50,000 shares of its common stock ($6 par; $20 fair market value) in exchange for 100% of the common stock of Subsidiary. In addition, Parent agreed to pay Sub shareholders an additional $150,000 if Sub meets certain profitability goals by the end of the following year. The estimated present value of its probability adjusted expected payment for the contingency is $71,500. Parent paid $18,000 accounting fees and $10,000 stock issuance costs to complete the acquisition The balance sheet accounts on the books of both companies before the transaction occurred are shown below. Fair market values of Sub's assets and liabilities are shown as well. In addition, Sub has a research and development project underway with an assessed fair value of $100,000. Sub Fair Values 85,000 180,000 600,000 200,000 Balance Sheet - Before purchase recorded Parent Cash 110,000 Receivables & Inventory 750,000 Property, Plant, & Equipment 1,400,000 Trademark 300,000 Total Assets 2,560,000 Liabilities 500,000 Common Stock 400,000 Additional Paid-In Capital 475,000 Retained Earnings 12/31 1.185.000 Total Liabilities & Equity 2,560,000 Sub 85,000 190,000 450,000 160.000 885,000 180,000 200,000 70,000 435.000 885,000 180,000