Pritano Company acquired all the net assets of Succo Company on December 31, 2018, for $2,160,000...
Pritano Company acquired all the net assets of Succo Company on December 31, 2018, for $2,160,000 cash. The balance sheet of Succo Company immediately prior to the acquisition showed:
| Book value | Fair value | |
| Current assets | $ 960,000 | $ 960,000 |
| Plant and equipment | 1,080,000 | 1,440,000 |
| Total | $2,040,000 | $2,400,000 |
| Liabilities | $ 180,000 | $ 216,000 |
| Common stock | 480,000 | |
| Other contributed capital | 600,000 | |
| Retained earnings | 780,000 | |
| Total | $2,040,000 |
As part of the negotiations, Pritano agreed to pay the stockholders of Succo $360,000 cash if the post‐combination earnings of Pritano averaged $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 the acquisition.
Required:
- Prepare the journal entries on the books of Pritano to record the acquisition on December 31, 2018.
- At the end of 2019, 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.
- In 2020, 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.
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Pritano Company acquired all the net assets of Succo Company on
December 31, 2018, for $2,160,000...
Exercise 2‐5 Asset Purchase, Contingent Consideration as a Liability LO 7 Pritano Company acquired all the...
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