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Ex 2 5
Ex 2 5
Ex 2 5
Pritano Company acquired all the net assets of Succo Company on December 31, 2013 for $2,160,000 cash. The
balance sheet of Succo Company immediately prior to the acquisition showed:
As part of the negotiations, Pritano agreed to pay the stockholders of Succo $360,000 cash is the post-combination
earnings of Pritano average $2,160,000 or more per year over the next two years. The estimated fair value of the
contingent consideration was $144,000 on the date of acquisition.
Required:
(a) Prepare the journal entries on the books of Pritano to record the acquisition on December 31, 2013.
(b) At the end of 2014, the estimated fair value of the contingent consideration increased to $200,000.
Prepare the journal entry to record the change in the fair value of the contingent consideration, if needed.
(c) In 2015, the earnings did not meet the earnout target and the estimated fair value of the contingent
consideration was zero. Prepare the journal entry to record the change in the fair value of the contingent consideration.
Ex 2-5
Pritano Company acquired all the net assets of Succo Company on December 31, 2013 for $2,160,000 cash. The
balance sheet of Succo Company immediately prior to the acquisition showed:
As part of the negotiations, Pritano agreed to pay the stockholders of Succo $360,000 cash is the post-combination
earnings of Pritano average $2,160,000 or more per year over the next two years. The estimated fair value of the
contingent consideration was $144,000 on the date of acquisition.
Required:
(a) Prepare the journal entries on the books of Pritano to record the acquisition on December 31, 2013.
DR CR
Current assets 960,000
Plant and Equipment 1,440,000
Goodwill 120,000
Liabilities 216,000
Contingent consideration 144,000
Cash 2,160,000
Ex 2-5
Pritano Company acquired all the net assets of Succo Company on December 31, 2013 for $2,160,000 cash. The
balance sheet of Succo Company immediately prior to the acquisition showed:
As part of the negotiations, Pritano agreed to pay the stockholders of Succo $360,000 cash is the post-combination
earnings of Pritano average $2,160,000 or more per year over the next two years. The estimated fair value of the
contingent consideration was $144,000 on the date of acquisition.
Required:
(b) At the end of 2014, the estimated fair value of the contingent consideration increased to $200,000.
Prepare the journal entry to record the change in the fair value of the contingent consideration, if needed.
DR CR
Loss from contingent consideration 56,000
Contingent consideration 56,000
Ex 2-5
Pritano Company acquired all the net assets of Succo Company on December 31, 2013 for $2,160,000 cash. The
balance sheet of Succo Company immediately prior to the acquisition showed:
As part of the negotiations, Pritano agreed to pay the stockholders of Succo $360,000 cash is the post-combination
earnings of Pritano average $2,160,000 or more per year over the next two years. The estimated fair value of the
contingent consideration was $144,000 on the date of acquisition.
Required:
(c) In 2015, the earnings did not meet the earnout target and the estimated fair value of the contingent
consideration was zero. Prepare the journal entry to record the change in the fair value of the contingent consideration.
DR CR
Contingent consideration 200,000
Gain from contingent consideration 200,000
Ex 2-5
Pritano Company acquired all the net assets of Succo Company on December 31, 2013 for $2,160,000 cash. The
balance sheet of Succo Company immediately prior to the acquisition showed:
As part of the negotiations, Pritano agreed to pay the stockholders of Succo $360,000 cash is the post-combination
earnings of Pritano average $2,160,000 or more per year over the next two years. The estimated fair value of the
contingent consideration was $144,000 on the date of acquisition.
Additional question:
Assume, instead, that the earnings did meet the earnout target. Prepare the journal entry to record
the change in the fair value of the contingent consideration and the payment to the stockholders.
DR CR
Loss from contingent consideration 160,000
Contingent consideration 160,000