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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.
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