Question

Pham Company acquired the assets (except for cash) and assumed the liabilities of Senn Company on...

Pham Company acquired the assets (except for cash) and assumed the liabilities of Senn Company on January 1, 2019, paying $720,000 cash. Senn Company's December 31, 2018, balance sheet, reflecting both book values and fair values, showed:

Book Value

Fair Value

Accounts receivable (net)

$ 72,000

$  65,000

Inventory

86,000

99,000

Land

110,000

162,000

Buildings (net)

369,000

450,000

Equipment (net)

 237,000

  288,000

 Total

 $874,000

$1,064,000

Accounts payable

$ 83,000

$  83,000

Note payable

180,000

180,000

Common stock, $2 par value

153,000

Other contributed capital

229,000

Retained earnings

 229,000

 Total

 $874,000

As part of the negotiations, Pham Company agreed to pay the former stockholders of Senn Company $200,000 cash if the post combination earnings of the combined company (Pham) reached certain levels during 2019 and 2020. The fair value of contingent consideration was estimated to be $100,000 on the date of acquisition.

Record the journal entry on the books of Pham Company to record the acquisition on January 1, 2019.

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Answer #1

The following journal entry shall be passed on Jan 01 2019

Date Particulars   Debit Credit
Jan 1 2019 Goodwill (Bal. Fig) 19000
Accounts receivable 65000
Inventory 99000
Land 162000
Buildings 450000
Equipment   288000
       Accounts payable 83000
       Note payable 180000
       Cash 720000
Contingent Concideration 100000
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