Question

Winnie Corporation purchases Joshua Company and, as part of the contract, will have to pay Joshua an additional $100,000 if the company achieves certain revenue goals for two years after the acquisition. How should Winnie account for this contingent payment?

Answer 1

Winnie corporation need to make a provision for contingent liability of $200,000 that might pay in future. $100,000 in current year and $100,000 in next year. However if company is sure or finds that they will not achieve the certain level then they can skip to account provision or contingent liability.

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