Question

Pritano Company acquired all the net assets of Succo Company on December 31, 2020 for $2,160,000 cash. The balance sheet of Succo immediately prior to the acquisition showed: Book Value Fair Value $960,000 1,440,000 $2,400,000 $216,000 Current Assets Plant and Equipment Total Liabilities Common Stock Other Contributed Capital Retained Earnings Total $960,000 1,080,000 $2,040,000 $180,000 480,000 600,000 780,000 $2,040,000 Pritano Company agreed to issue 10,000 additional shares of its $10 par value common stock to the stockholders of Succo if the average post-combination earnings over the next three years equaled or exceeded $2,500,000. The fair value of the contingent consideration on the date of acquisition was estimated to be $200,000. The contingent consideration (earnout) was classified as equity rather than as a liability. A. Prepare the journal entries on the books of Pritano Company to record the acquisition on December 31, 2020 B. On January 1, 2022, the additional 10,000 shares of Pritano Company were issued because the earnouts were met. On this date, Pritano Companys stock was $50 per share. Prepare the journal entry to record the issuance of the shares of stock.

Answer 1

(a)

Date	Particulars	Debit	Credit
	Current Assets	$960,000
	Plant and Equipment	$1,440,000
	Goodwill	$176,000
	Liabilities		$216,000
	Cash		$2,160,000
	Paid in Capital – Contingent Consideration		$200,000

(b)

Date	Particulars	Debit	Credit
Jan 01	Paid in Capital – Contingent Consideration	$200,000
	Common Stock   (10,000 * 10 )		$100,000
	Paid in Capital – in excess of par		$100,000
	(Being to record the issuance of common stock)

[Note : Pritano Company will not adjust the original amount recorded as equity]

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