Question

Branson paid $544,600 cash for all of the outstanding common stock of Wolfpack, Inc., on January 1, 2017. Un inalte, uie Subidy had a book value of $389,000 (common stock of $200,000 and retained earnings of $189,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a $142,000 fair value. Any remaining excess fair value was considered goodwill. In negotiating the acquisition price, Branson also promised to pay Wolfpack's former owners an additional $62,000 if Wolfpack's Income exceeded $160,000 total over the first two years after the acquisition. At the acquisition date, Branson estimated the probability-adjusted present value of this contingent consideration at $43,400. On December 31, 2017, based on Wolfpack's earnings to date, Branson increased the value of the contingency to $49,600. During the subsequent two years, Wolfpack reported the following amounts for income and dividends: 2017 2018 Net Income $ 84,200 94,200 Dividends Declared $ 20,000 30,000 In keeping with the original acquisition agreement, on December 31, 2018, Branson paid the additional $62,000 performance fee to Wolfpack's previous owners. Prepare each of the following: a. Branson's entry to record the acquisition of the shares of its Wolfpack subsidiary. b. Branson's entries at the end of 2017 and 2018 to adjust its contingent performance obligation for changes in fair value and the December 31, 2018, payment. c. Prepare consolidation worksheet entries as of December 31, 2018, assuming that Branson has applied the equity method. d. Prepare consolidation worksheet entries as of December 31, 2018, assuming that Branson has applied the initial value method. Next

Answer 1

SOLUTION:

PART-A)
Particulars	Debit	Credit
Investment on Wolfpack	588,000
Contingent performance obligation		43,400
Cash		544,600
PART-B)
Particulars	Debit	Credit
Loss from increase in contingent performance obligation(49,600-43,400)	6,200
Contingent performance obligation		6,200
Loss from increase in contingent performance obligation(62,000-49,600)	12,400
Contingent performance obligation		1,2,400
Contingent performance obligation	62,000
Cash		62,000
PART-C)
Particulars	Debit	Credit
Common stock-Wolfpack	200,000
Retained earnings - Wolfpack(189000+84,200-20,000)	253,200
Investment in Wolfpack		453,200
Royalty agreements(142,000-14200)	127,800
Goodwill	57,000
Investment in Wolfpack		184,800
Equity earnings in Wolfpack(94,200-14200)	80000
Investment in Wolfpack		80,000
Investment in Wolfpack	30,000
Dividends declared		30,000
Amortization expense(142,000/10)	14,200
Royalty agreements		14,200
PART-D)
Particulars	Debit	Credit
Investment in Wolfpack(84200-20,000-19200)	45,000
Retained earnings - Branson		45,000
Common stock	200,000
Retained earnings - Wolfpack(189000+84,200-20,000)	253,200
Investment in Wolfpack		453,200
Royalty agreements	127,800
Goodwill	57,000
Investment in Wolfpack		184,800
Dividends income	30,000
Dividends declared		30,000
Amortization expense	14,200
Royalty agreements		14,200

**goodwill=544,600+43,400-(189000+200,000

142,000)=67000

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