Cash Acquisition, Contingent Consideration
Pham Company acquired the assets (except for cash) and assumed the liabilities of Senn Company on January 1, 2011, paying $720,000 cash. Senn Company”s December 31, 2010, 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 |
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As part of the negotiations, Pham Company agreed to pay the former stockholders of Senn Company $135,000 cash if the post combination earnings of the combined company (Pham) reached certain levels during 2011 and 2012.
Required:
- Record the journal entry on the books of Pham Company to record the acquisition on January 1, 2011. It is expected that the earnings target is likely to be met.
- Assuming the earnings contingency is met, prepare the journal entry on Pham Company”s books to settle the contingency on January 2, 2013.
- Assuming the earnings contingency is not met, prepare the necessary journal entry on Pham Company”s books on January 2, 2013.