Please help Pyle Company acquired the assets (except cash) and assumed the liabi
ID: 2503973 • Letter: P
Question
Please help
Pyle Company acquired the assets (except cash) and assumed the liabilities of Sand Company on January 1, 2011, paying $2,600,000 cash. Immediately prior to the acquisition, Sand Company's balance sheet was as follows:
BOOK VALUE FAIR VALUE
Accounts receivable (net) $ 240,000 $ 220,000
Inventory 290,000 320,000
Land 960,000 1,508,000
Buildings (net) 1,020,000 1,392,000
Total $2,510,000 $3,440,000
Accounts payable $ 270,000 $ 270,000
Note payable 600,000 600,000
Common stock, $5 par 420,000
Other contributed capital 640,000
Retained earnings 580,000
Total $2,510,000
Pyle Company agreed to pay Sand Company's former stockholders $200,000 cash in 2012 if post- combination earnings of the combined company reached $1,000,000 during 2011.
Required:
A. Prepare the journal entry necessary for Pyle Company to record the acquisition on January 1, 2011. It is expected that the earnings target is likely to be met.
B. Prepare the journal entry necessary for Pyle Company in 2012 assuming the earnings contingency was not met.
Explanation / Answer
A. Accounts Receivable 240,000
Inventory 320,000
Land 1,508,000
Buildings 1,392,000
Goodwill 30,000
Allowance for Uncollectible Accounts 20,000
Accounts Payable 270,000
Note Payable 600,000
Cash 2,600,000
Goodwill 200,000
Liability for Contingent Consideration 200,000
Cost of acquisition $2,600,000
Fair value of net assets acquired
($3,440,000