Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Pretenders Corp. purchased 100% of Singapore Corp. on January 1, 2021 for the following consideration: $1,500,000 of cash 100,000 Pretenders Corp. shares. Each of these

Pretenders Corp. purchased 100% of Singapore Corp. on January 1, 2021 for the following consideration:

  • $1,500,000 of cash
  • 100,000 Pretenders Corp. shares. Each of these shares were estimated to have a fair value of $10.
  • $5,000,000 note payable with a 3% coupon rate. The note payable and interest is due December 31,
  • 2021.
  • An additional $750,000 of cash if certain income targets are met in 2021 and 2022. If the income targets
  • are met, the additional payout will be made on December 31, 2022. Pretenders Corp. believes there is a 60% chance this payout will have to be made.
  • Pretenders Corp. has a market borrowing interest rate of 10%.

Can you solve these:

A) Calculate the purchase price of the acquisition of Singapore Corp. as at January 1, 2021.

B)

  1. I)Which of the above consideration would qualify as contingent consideration?
  2. II)Would the contingent consideration be recorded as liability or equity on the date of the acquisition?
  3. III)Please explain the difference on how you account for contingent consideration that qualifies as a
  4. liability, compared to contingent consideration that qualifies as equity after the date of the acquisition.

C) As at December 31, 2021, Pretender Corp. believes that the probability of payout of the $750,000 of cash has decreased to a 40% chance. Please provide the journal entry that would need to be recorded on December 31, 2021.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

College Accounting

Authors: Heintz and Parry

20th Edition

1285892070, 538489669, 9781111790301, 978-1285892078, 9780538489669, 1111790302, 978-0538745192

More Books

Students also viewed these Accounting questions

Question

How would you improve a persons fluency of spoken English?

Answered: 1 week ago