PROBLEM $1$

Gull Company $($Investor$)$ purchased the net assets of Hart Company $($Investee$)$ on January $1,20$X$1,$

and made the following entry to record the purchase:

Current Assets....

Equipment.

Land.

Buildings

Goodwill.

Liabilities

Common Stock $($ $$5$ par$)$

Paid$-$In Capital in Excess of Par.

$100,000,$

$150,000,$

$50,000,$

$300,000,$

$100,000,$

$,80,000$

$,200,000$

$,420,000$

Make the required entry on January $1,20$X$3,$ for each of the following independent

contingency agreements:

Added shares would be issued on January $1,20x3,$ to compensate for any fall in the value of

Gull common stock below $$13$ per share. The settlement would be to cure the deficiency by

issuing added shares based on their fair value on January $1,20$X$3.$ The market price of the

shares on January $1,203,$ was $$10.$

An additional cash payment would be made on January $1,203,$ equal to twice the amount

by which average annual earnings of the Hart Division exceed $$72,000$ per year, prior to

January $1,20x3.$ Net income was $$65,000$ in $20x1$ and $$75,000$ in $20x2.$ Assume that the

liabilities recorded on January $1,20$X$1,$ include an estimated contingent liability recorded at

an estimated amount $$63,000.$

Added shares would be issued on January $1,20x3,$ equal in value to twice the amount by

which average annual earnings of the Hart Division exceed $$48,000$ per year, prior to January

$1,20x3.$ Net income was $$84,000$ in $20x1$ and $$96,000$ in $20x2.$ The market price of the

shares on January $1,203,$ was $$7.$