Reference no: EM132462215

Branson paid $543,800 cash for all of the outstanding common stock of Wolfpack, Inc., on January 1, 2017. On that date, the subsidiary had a book value of $401,000 (common stock of $200,000 and retained earnings of $201,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a $124,000 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 $56,000 if Wolfpack's income exceeded $130,000 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 $39,200. On December 31, 2017, based on Wolfpack's earnings to date, Branson increased the value of the contingency to $44,800.

During the subsequent two years, Wolfpack reported the following amounts for income and dividends:

• Net Income/Dividends Declared 2017 $ 72,400 / $ 25,000 2018 82,400 / 35,000
• In keeping with the original acquisition agreement, on December 31, 2018, Branson paid the additional $56,000 performance fee to Wolfpack's previous owners.

Prepare each of the following:

Question 1: Branson's entry to record the acquisition of the shares of its Wolfpack subsidiary.

Question 2: 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.

Question 3: Prepare consolidation worksheet entries as of December 31, 2018, assuming that Branson has applied the equity method.

Question 4: Prepare consolidation worksheet entries as of December 31, 2018, assuming that Branson has applied the initial value method