Hite Corporation is contemplating the acquisition of Smith Company€™s net assets on December 31, 2011. It is considering making an offer, which would include a cash payout of $200,000 along with giving 15,000 shares of its $2 par value common stock that is currently selling for $20 per share. Hite also agrees that it will pay an additional $50,000 on January 1, 2014, if the average net income of Smith€™s business unit exceeds $80,000 for 2012 and 2013. The likelihood of reaching that target is estimated to be 75%. The balance sheet of Smith Company is given below, along with estimated fair values of the net assets to be acquired.

Required
1. Do value analysis and prepare the entry on the books of Hite Corporation to record the acquisition of Smith Company.
2. Assume that the net income of the Smith business unit is $120,000 for 2012. As a result, the likelihood of paying the contingent consideration is believed to be 90%. What, if any, adjusting entry is required as of December 31, 2012?

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Smith Company Balance Sheet December 31, 2011 Book Value Fair Value Book Value Fair Value Current assets: Current liabilities: Notes receivable$33,000 33,000 Accounts payable $63,000 63,000 15,000 3,000 $137000 $128,000 Total current liabilities81,000 81,000 89,000 .15,000 80,000 Taxes payable 15,000 Interest payable 15,000 3,000 Prepaid expenses Total current assets.... Investments Fixed assets: Land Buildings Equipment.256,000 36,000 55,000 Other liabilities: ..$15,000 90,000 Bonds payable .$250,000 $250,000 .. ..,00 170,000 Discount on bonds payable .18,000 (30,000) 250,000 25,000 32,000 $418,000 $535,000 Total other liabilities Total fixed assels. $232,000 $220,000 Intangibles: Stockholders' equity Paid-in capital in excess of par Retained earnings 200,000 84,000 $334,000 $647,000 Total equity . . . . Total assels $647,000 $788,000 To liabilities and equity