On January 1, 2021, Universal Inc. acquired 80% of United's outstanding common stock in exchange for 10,000 shares of Universal common stock ($5 par value).  At this date Universal's common stock had a traded market value of $25 per share, while United's common stock had a traded market value of $18 per share. 

Assume that the transaction contains a provision that Universal will issue United's stockholders an additional 1,000 shares of its stock on April 10, 2022, if the consolidated income for year 2021 is greater than $1 million.  Universal estimated the present value of its probability adjusted expected payment for the contingency at acquisition to be $10,000.  

 

Required:

1. If the 2021 fiscal year-end's consolidated net income is $1.5 million and on April 10, 2022, Universal's common stock had a traded market value of $32 per share, prepare the necessary journal entries in Universal's pre-consolidation accounting records on January 1, 2021, December 31, 2021, and April 10, 2022.
2. Repeat the previous requirement assuming instead that the transaction contains a provision requiring Universal to pay $15,000 cash to United's stockholders on April 10, 2022, if the consolidated income for year 2021 is greater than $1 million.  Universal estimated the present value of its probability adjusted expected payment for the contingency at acquisition to be $8,000.