$2,$ Exercise $2-6$

Asset Purchase, Contingent Consideration as Equity LO $7$

Assume the same information as in Exercise $2-5$ except that instead of paying a cash earnout, Pritano Company agreed to issue $10,000$ additional shares of its $$10$ par value common stock to the stockholders of Succo if the average postcombination earnings over the next three years equaled or exceeded $$2,500,000.$ The fair value of the contingent consideration on the date of acquisition was estimated to be $$200,000.$ The contingent consideration $($earnout$)$ was classified as equity rather than as a liability.

Required:

A$.$ Prepare the journal entries on the books of Pritano to record the acquisition on December $31,2018.$

B$.$ On January $1,2022,$ the additional $10,000$ shares of Pritano's stock were issued because the earnout targets were met. On this date, Pritano's stock price was $$50$ per share. Prepare the journal entry to record the issuance of the shares of stock.