PROBLEM 2-4 Cash Acquisition, Contingent Consideration LO 6 LO 7 Pham Company acquired the assets (except for cash) and assumed the liabilities of Senn Company on January 1, 2014, paying $720,000 cash. Senn Company's December 31, 2013, balance sheet, reflecting both book values and fair values, showed:

Book Value Fair Value

Accounts receivable (net) $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

Note payable 180,000 180,000

Common stock, $2 par value 153,000

Other contributed capital 229,000

Retained earnings 229,000

Total $874,000

As part of the negotiations, Pham Company agreed to pay the former stockholders of Senn Company $200,000 cash if the postcombination earnings of the combined company (Pham) reached certain levels during 2014 and 2015. The fair value of contingent consideration was estimated to be $100,000 on the date of acquisition.

Required:

A. Record the journal entry on the books of Pham Company to record the acquisition on January 1, 2014.

B. During 2014, the likelihood of meeting the post combination earnings goal increased. As a result, at the end of 2014, the estimated fair value of the contingent consideration increased to $120,000. Prepare any journal entry needed to account for the change in the fair value of contingent consideration.

C. During 2015, the likelihood of meeting the post combination earnings goal significantly decreased and the contingent consideration target was not met. Prepare any journal entry needed to account for the change in the fair value of contingent consideration.