Pham Company acquired the assets (except for cash) and assumed the liabilities of Senn Company on January

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Pham Company acquired the assets (except for cash) and assumed the liabilities of Senn Company on January 1, 2019, paying $720,000 cash. Senn Company?s December 31, 2018, balance sheet, reflecting both book values and fair values, showed:

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As part of the negotiations, Pham Company agreed to pay the former stockholders of Senn Company $200,000 cash if the postcombination earnings of the combined company (Pham) reached certain levels during 2019 and 2020. The fair value of contingent consideration was estimated to be $100,000 on the date of acquisition.

Required:

A. Record the journal entry on the books of Pham Company to record the acquisition on January 1, 2019.

B. During 2019, the likelihood of meeting the post combination earnings goal increased. As a result, at the end of 2019, the estimated fair value of the contingent consideration increased to $120,000. Prepare any journal entry needed to account for the change in the fair value of contingent consideration.

C. During 2020, the likelihood of meeting the post combination earnings goal significantly decreased and the contingent consideration target was not met. Prepare any journal entry needed to account for the change in the fair value of contingent consideration.

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Advanced Accounting

ISBN: 978-1119373209

7th edition

Authors: Debra C. Jeter, Paul K. Chaney

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