ACCOUNTING-Pritano Company acquired all the net assets of Succo Company

QUESTION

Asset Purchase, Contingent ConsiderationPritano Company acquired all the net assets of Succo Company on December 31, 2010, for $2,160,000 cash. The balance sheet of Succo Company immediately prior to the acquisition showed:Book valueFair valueCurrent assets$ 960,000$ 960,000Plant and equipment1,080,0001,440,000Total$2,040,000$2,400,000Liabilities$ 180,000$ 216,000Common stock480,000Other contributed capital600,000Retained earnings780,000Total$2,040,000As part of the negotiations, Pritano agreed to pay the stockholders of Succo $360,000 cash if the postcombination earnings of Pritano averaged $2,160,000 or more per year over the next two years.Required:Prepare the journal entries on the books of Pritano to record the acquisition on December 31, 2010. It is expected that the earnings target is likely to be met.

ANSWER:

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