Question
PROBLEM 1: Pham Company acquired the assets (except for cash) and assumed the liabilities of Sen Company on January 1, 20x4 paying $720,000 cash. Sen
PROBLEM 1: Pham Company acquired the assets (except for cash) and assumed the liabilities of Sen Company on January 1, 20x4 paying $720,000 cash. Sen Company's December 31, 20x3 balance sheet, reflecting both book values and fair values showed:
ParticularsBook value Fair value
Accounts receivable 72,000 65,000
Inventory 86,000 99,000
Land 110,000 162,000
Buildings (net) 369,000 450,000
Equipment (net) 237,000 288,000
Total 874,000 1,064,000
Accounts payable 83,000 83,000
Notes payable 180,000 180,000
Common stock, $2 par153,000
Other contributed capital229,000
Retained earnings229,000
Total 874,000
As part of negotiations, Pham Company agreed to pay the former stockholders of Sen Company $135,000 cash if the post combination earnings of the combined company (Pham) reached certain levels during 20x4 and 20x5.
Required:
- Record the journal entry on the books of Pham Company to record the acquisition on January 1, 20x4. It is expected that the earnings target is likely to be met. (Note: Include your computation of goodwill)
- Assuming the earnings contingent is met, prepare the journal entry on Pham Company's books to settle the contingency on January 2, 20x6
- Assuming the earnings contingent is not met, prepare the necessary journal entry on Pham Company's books on January 2, 20x6.
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