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Assignment

Pham Company acquired the assets and liabilities of Sen Company, paying $720,000 cash and agreeing to pay $135,000 more if certain earnings targets were met. Sen Company's balance sheet showed net assets of $1,064,000. To record the acquisition, Pham would debit assets for their fair values, credit liabilities, and recognize goodwill of $54,000 as the difference between consideration and net assets acquired. If earnings targets were met, Pham would pay the $135,000 and debit contingent liability; if not met, Pham would close the $135,000 contingent liability to a gain.

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141 views3 pages

Assignment

Pham Company acquired the assets and liabilities of Sen Company, paying $720,000 cash and agreeing to pay $135,000 more if certain earnings targets were met. Sen Company's balance sheet showed net assets of $1,064,000. To record the acquisition, Pham would debit assets for their fair values, credit liabilities, and recognize goodwill of $54,000 as the difference between consideration and net assets acquired. If earnings targets were met, Pham would pay the $135,000 and debit contingent liability; if not met, Pham would close the $135,000 contingent liability to a gain.

Uploaded by

Krista Flores
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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PROBLEM 1: Pham Company acquired the assets (except for cash) and assumed the liabilities of Sen Company

on January
P720,000 cash. Sen Company’s December 31, 20x3 balance sheet, reflecting both book values and fair values showed:
Particulars                                             Book value                    Fair value
Accounts receivable                               P72,000                         P65,000
Inventory                                               86,000                          99,000
Land                                                      110,000                        162,000
Buildings (net)                                        369,000                        450,000
Equipment (net)                                     237,000                        288,000
Total                                                     P874,000                   P1,064,000
Accounts payable                                   P83,000                         P83,000
Notes payable                                       180,000                         180,000
Common stock, P2 par                          153,000
Other contributed capital                     229,000
Retained earnings                                  229,000
Total                                                     P874,000

As part of negotiations, Pham Company agreed to pay the former stockholders of Sen Company P135,000 cash if the post
earnings of the combined company (Pham) reached certain levels during 20x4 and 20x5.
Required:
1. Record the journal entry on the books of Pham Company to record the acquisition on January 1, 20x4. It is expected tha
target is likely to be met. (Note: Include your computation of goodwil)
2. Assuming the earnings contingent is met, prepare the journal entry on Pham Company’s books to settle the contingenc
20x6
3. Assuming the earnings contingent is not met, prepare the necessary journal entry on Pham Company’s books on Janua
Sen Company on January 1, 20x4 paying Price Paid
nd fair values showed: Contingent Consideration
Total
Less: Fair Value of Net Assets
Assets:
Accounts Receivable 65,000
Inventory 99,000
Land 162,000
Buildings (net) 450,000
Equipment (net) 288,000
Liabilities:
Accounts Payable 83,000
P135,000 cash if the post combination Notes Payable 180,000

y 1, 20x4. It is expected that the earnings

ks to settle the contingency on January 2, Goodwill/(Gain on bargain purch)

ompany’s books on January 2, 20x6.


P720,000 Requirement No. 1
135,000 Journal Entries
P855,000 Accounts Receivables 65,000
Inventory 99,000
Land 162,000
Buildings (net) 450,000
Equipment (net) 288,000
Goodwill 54,000
Accounts Payable 83,000
1,064,000 Notes Payable 180,000
Cash 720,000
Contingent Liability 135,000
-263,000
P801,000 Requirement No. 2
If the earnings contingent is met:
P54,000 Contingent Liability 135,000
Cash 135,000

Requirement No.3
If the earnings contingent is not met:
Contingent Liability 135,000 135,000
Gain on contigent liability

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