Reference no: EM131870751
Holt Corporation is contemplating the acquisition of Sambo Company’s net assets on December 31, 2015. It is considering making an offer, which would include a cash payout of $225,000 along with giving 15,000 shares of its $2 par value common stock that is currently selling for $20 per share. Holt also agrees that it will pay an additional $50,000 on January 1, 2018, if the average net income of Sambo’s business unit exceeds $80,000 for 2016 and 2017. The likelihood of reaching that target is estimated to be 60%. The balance sheet of Sambo Company is given below, along with estimated fair values of the net assets to be acquired.
Sambo Company
Balance Sheet December 31, 2015
Book Value Fair Value
Book Value Fair Value Current assets:
Current liabilities:
Notes receivable $ 33,000 $ 33,000
Accounts payable $ 63,000 $ 63,000
Inventory 80,000 80,000
Taxes payable 15,000 15,000
Prepaid expenses 15,000 15,000
Interest payable 3,000 3,000
Total current assets $128,000 $128,000
Total current liabilities $ 81,000 $ 81,000
Investments $ 36,000 $ 55,000
Fixed assets: Other liabilities:
Land $ 15,000 $ 90,000
Bonds payable $250,000 $250,000
Buildings 115,000 170,000
Discount on bonds payable (18,000) (30,000)
Equipment 256,000 250,000 Vehicles 32,000 25,000
Total fixed assets $418,000 $535,000
Total other liabilities $232,000 $220,000
Intangibles: Stockholders’ equity:
Franchise $ 56,000 $ 70,000
Common stock $ 50,000
Paid-in capital in excess of par 200,000
Retained earnings 75,000
Total equity $325,000
Total assets $638,000 $788,000
Total liabilities and equity $638,000
a) Do value analysis and prepare the entry on the books of Holt Corporation to record the acquisition of Sambo Company?
b) Assume that the net income of the Sambo business unit is $120,000 for 2016.
As a result, the likelihood of paying the contingent consideration is believed to be 90%. What, if any, adjusting entry is required as of December 31, 2016?
Calculate the excess total cost over fair value or net assets or the goodwill
Have journal entry to show consideration.