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PROBLEM 1 Gull Company ( Investor ) purchased the net assets of Hart Company ( Investee ) on January 1 , 2 0 X 1

PROBLEM 1
Gull Company (Investor) purchased the net assets of Hart Company (Investee) on January 1,20X1,
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 1,20X3, 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 1,20X3. 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 1,20X1, 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.
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