Reference no: EM131776403

Please find the problem attached

II. On 1/1/15 Big Co. acquired Little Co. in a business combination to be accounted for as a merger. Big paid $400,000 in cash plus a contingent consideration agreement.  The contingent consideration agreement provided that additional cash payments would be made to the sellers based upon 3 year cumulative earnings growth, as set out in the following table:

3 year cumulative earnings growth	Additional payment	Likelihood of attaining that target
<4%	$0	10%
4.01% - 6%	$10,000	35%
6.01% - 9%	$20,000	30%
9.01% +	$30,000	25%

Little Co. had the following trial balance at 1/1/15:

	Book value	Fair value
Cash and receivables	40,000	40,000
Inventory	50,000	55,000
Land	100,000	90,000
Equipment	200,000	170,000
Less: Accumulated depreciation, equipment	(50,000)
Patents	30,000	50,000
Current liabilities	30,000	30,000
Bonds payable, $100,000 face value	100,000	105,000
Common Stock	50,000
Paid in capital in excess of par	60,000
Retained earnings	130,000

At the end of 3 years, actual 3 year cumulative earnings growth was 5.6%.

Required:

Record the acquisition of Little, as well as the payment after 3 years of any contingent consideration payment.