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Prepare the journal entry to record the change in fair value

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Reference no: EM13851549

Pritano Company acquired all the net assets of Succo Company on December 31, 2013, 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 post-combination earnings of Pritano averaged $2,160,000 or more per year over the next two years. The estimated fair value of the contingent consideration was $144,000 on the date of the acquisition.

Required:

A. Prepare the journal entries on the books of Pritano to record the acquisition on December 31, 2013.

B. At the end of 2014, the estimated fair value of the contingent consideration increased to $200,000. Prepare the journal entry to record the change in the fair value of the contingent consideration, if needed.

C. In 2015, the earnings did not meet the earnout target and the estimated fair value of the contingent consideration was zero. Prepare the journal entry to record the change in the fair value of the contingent consideration.

Reference no: EM13851549

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