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4. Johnson paid $325,000 to acquire 100% of Willis Corporation in a statutory merger. In addition, Johnson also agreed to pay the shareholders of Willis $0.40 in cash for every dollar in income from continuing operations of the combined entity over $75,000 in the first three years following acquisition. Johnson projects that there is a 20% (45%, 35%) probability that the income from continuing operations in the first three years following acquisition is $65,000 (590,000, S115,000 respectively). Johnson uses a discount rate of 7%. Information for Willis Corporation immediately before the merger was as follows: Book value Fair value Current assets 40,000 50,000 Plant assets 120,000 70,000 Liabilities 50,000 45,000 Previously unreported items identified as belonging to Willis Fair value Contracts under negotiation with potential customers 15.000 In process research and development 12.000 Skilled workforce 23,000 Recent favorable press reports on Willis 2.000 Proprietary databases 8.000 Show your determination of the contingent consideration (ii) Show your determination the goodwill to be reported in this acquisition 5. HC Corporation issued 7,000 shares of its $2 par value common stock at a market price of $20 per share to acquire all the outstanding common stock of Barry Corporation. HC paid $1.800 of legal fees for this business combination and $700 for issuing the securities. Barry was merged into HIC and dissolved. Information for Barry Corporation immediately before the merger was as follows Book value Fair value Cash 2,000 2.000 Building 10.000 25,000 Patents 8.000 Total 32.000 35.000 Accounts payable 5.000 Common stock 2.000 Add. paid in capital 10,000 Retained earning 15.000 Total 32 000 Prepare the journal entries on HC Corporation's books to account for the business combination

Answer 1

ANSWER 5:

Attaching the image below for reflecting the acquisition of Barry COrporation by HC corporation. The acquisition entries have been passed keeping in mind the fair values of the organisation and the goodwill account created here is the negative goodwill.

28 29 30 26 2 1 Pasticulass 07. Cashak Or 3,000 Buildings ale os 95, DDD Patents alco Dr. 8,000 To Acc. Payable 5,000 To common stock one 12,000 To Retained 15,000 earnings oro To Goodwill 3,000 (Being company acquired) Common stock o Do. 1,40,000 Legal & security Do 9.500 TO Cash (Being stocks Puschale 1,42,500

COmment below in case of any doubts.