Reference no: EM132781243
Question - Pham Company acquired the assets (except for cash) and assumed the liabilities of Sen Company on January 1, 20x4 paying &720,000 cash. Sen Company's December 31, 20x3 balance sheet, reflecting both book values and fair values showed:
|
Particulars
|
Book value
|
Fair value
|
|
Accounts receivable
|
$72,000
|
$65,000
|
|
Inventory
|
86,000
|
99,000
|
|
Land
|
110,000
|
162,000
|
|
Buildings (net)
|
369,000
|
450,000
|
|
Equipment (net)
|
237,000
|
288,000
|
|
Total
|
$874,000
|
$1,064,000
|
|
Accounts payable
|
$83,000
|
$83,000
|
|
Notes payable
|
180,000
|
180,000
|
|
Common stock, $2 par
|
153,000
|
|
|
Other contributed capital
|
229,000
|
|
|
Retained earnings
|
229,000
|
|
|
Total
|
$874,000
|
|
As part of negotiations, Pham Company agreed to pay the former stockholders of Sen Company $135,000 cash if the post combination earnings of the combined company (Pham) reached certain levels during 20x4 and 20x5.
Required -
1) Record the journal entry on the books of Pham Company to record the acquisition on January 1, 20x4. It is expected that the earnings target is likely to be met.
2) Assuming the earnings contingent is met, prepare the journal entry on Pham Company's books to settle the contingency on January 2, 20x6
3) Assuming the earnings contingent is not met, prepare the necessary journal entry on Pham Company's books on January 2, 20x6.
4) Make a Balance Sheet and Income Statement for Pham Company & Sen Company. make sure it is balanced.