Reference no: EM13342582

Asset Purchase, Contingent Consideration

Pritano Company acquired all the net assets of Succo Company on December 31, 2010, for $2,160,000 cash. The balance sheet of Succo Company immediately prior to the acquisition showed:

	Book value	Fair value
Current assets	$ 960,000	$ 960,000
Plant and equipment	1,080,000	1,440,000
Total	$2,040,000	$2,400,000
Liabilities	$ 180,000	$ 216,000
Common stock	480,000
Other contributed capital	600,000
Retained earnings	780,000
Total	$2,040,000

As part of the negotiations, Pritano agreed to pay the stockholders of Succo $360,000 cash if the postcombination earnings of Pritano averaged $2,160,000 or more per year over the next two years.

Required:

Prepare the journal entries on the books of Pritano to record the acquisition on December 31, 2010. It is expected that the earnings target is likely to be met.