Please help Pyle Company acquired the assets (except cash) and assumed the liabilities of Sand Company on January 1, 2011, paying $2,600,000 cash. Immediately prior to the acquisition, Sand Company's balance sheet was as follows:

BOOK VALUE FAIR VALUE

Accounts receivable (net) $ 240,000 $ 220,000

Inventory 290,000 320,000

Land 960,000 1,508,000

Buildings (net) 1,020,000 1,392,000

Total $2,510,000 $3,440,000

Accounts payable $ 270,000 $ 270,000

Note payable 600,000 600,000

Common stock, $5 par 420,000

Other contributed capital 640,000

Retained earnings 580,000

Total $2,510,000

Pyle Company agreed to pay Sand Company's former stockholders $200,000 cash in 2012 if post- combination earnings of the combined company reached $1,000,000 during 2011.

Required:

A. Prepare the journal entry necessary for Pyle Company to record the acquisition on January 1, 2011. It is expected that the earnings target is likely to be met.

B. Prepare the journal entry necessary for Pyle Company in 2012 assuming the earnings contingency was not met.

Solution