Holt Corporation is contemplating the acquisition of Sambo Company's net assets on December 31, 2015. It is considering making an offer, which would include a cash payout of $225,000 along with giving 15,000 shares of its $2 par value common stock that is currently selling for $20 per share. Holt also agrees that it will pay an additional $50,000 on January 1, 2018, if the average net income of Sambo's business unit exceeds $80,000 for 2016 and 2017. The likelihood of reaching that target is estimated to be 60%. The balance sheet of Sambo Company is given below, along with estimated fair values of the net assets to be acquired.

1. Do value analysis and prepare the entry on the books of Holt Corporation to record the acquisition of Sambo Company.
2. Assume that the net income of the Sambo business unit is $120,000 for 2016. 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, 2016?

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Sambo Company Balance Sheet December 31, 2015 Book Value Fair Value Book Value Fair Value Current liabilities: Current assets: Notes receivable nventory Prepaid expenses $ 33,000 33,000 Accounts payable $63,000 63,000 15,000 3,000 81,000 81,000 80,000 80,000 Taxes payable 15,000 Interest payable 15,000 3,000 5,000 $128,000 $128,000 $36,000 55,000 Total current assets nvestments Fixed assets: Land Buildings Equipment Vehicles Total current liabilities Other liabilities: $ 15,000 $ 90,000 Bonds payable $250,000 $250,000 8,000 (30,000 15,000 70,000 Discount on bonds payable 256,000 250,000 32,000 25,000 Total fixed assets $418,000 $535,000 Total other liabilities $232,000 $220,000 Intangibles: Franchise Stockholders' equity: $ 50,000 200,000 75,000 $325,000 $638,000 $ 56,000 70,000 Common stock Paidin capital in excess of par Retained earnings Total equity Total liabilities and equity Total assets $638,000 $788,000