:. On January 1, 2020, Riki Co. acquires the entire share capital of Doom Co. by issuing 100,000 new P2 ordinary shares at a fair value at the acquisition date of P2.50. The professional fees associated with the acquisition are P20,000 and the issue costs of the shares are P10,000. The carrying value of the net assets of Doom Co. at the time of acquisition is P150,000, which is equal to its fair value. A contract exists whereby Riki Co. will buy certain components from Doom Co. over the next five years. The contract was signed when market prices for these components were markedly higher than they are at the acquisition date. At the acquisition date the fair value of the amount by which the contract prices are expected to exceed market prices over the next five years is P1.5 million. Required: Based on the above data, prepare the journal entries and compute the goodwill (gain) assuming: Case No. 1: If Doom's profits for the first full year following acquisition exceed P2 million, Riki Co. will make an additional cash consideration of P200,000 within one month after that year end. It is doubtful whether Doom Co. will achieve this profit, hence the acquisition-date fair value of this contingent consideration is P100,000. On July 15, 2020, the value of the contingent consideration is determined to be P125,000. This additional valuation is related to facts and circumstances that existed as of the acquisition date. On September 16, 2020, the value of the contingent consideration is revised to P129,000. This additional valuation is not related to facts and circumstances that existed as of the acquisition date. On October 1, 2020, Riki Co. receives the information it was seeking about facts and circumstances that existed as of the acquisition date. Doom's profits for the first full year is P2.5 million and settlement was made on January 15, 2021.
:. On January 1, 2020, Riki Co. acquires the entire share capital of Doom Co. by issuing 100,000 new P2 ordinary shares at a fair value at the acquisition date of P2.50. The professional fees associated with the acquisition are P20,000 and the issue costs of the shares are P10,000. The carrying value of the net assets of Doom Co. at the time of acquisition is P150,000, which is equal to its fair value. A contract exists whereby Riki Co. will buy certain components from Doom Co. over the next five years. The contract was signed when market prices for these components were markedly higher than they are at the acquisition date. At the acquisition date the fair value of the amount by which the contract prices are expected to exceed market prices over the next five years is P1.5 million. Required: Based on the above data, prepare the journal entries and compute the goodwill (gain) assuming: Case No. 1: If Doom's profits for the first full year following acquisition exceed P2 million, Riki Co. will make an additional cash consideration of P200,000 within one month after that year end. It is doubtful whether Doom Co. will achieve this profit, hence the acquisition-date fair value of this contingent consideration is P100,000. On July 15, 2020, the value of the contingent consideration is determined to be P125,000. This additional valuation is related to facts and circumstances that existed as of the acquisition date. On September 16, 2020, the value of the contingent consideration is revised to P129,000. This additional valuation is not related to facts and circumstances that existed as of the acquisition date. On October 1, 2020, Riki Co. receives the information it was seeking about facts and circumstances that existed as of the acquisition date. Doom's profits for the first full year is P2.5 million and settlement was made on January 15, 2021.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter13: Investments And Long-term Receivables
Section: Chapter Questions
Problem 19E
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Transcribed Image Text:12. On January 1, 2020, Riki Co. acquires the entire share capital of Doom Co. by issuing 100,000 new P2 ordinary shares
at a fair value at the acquisition date of P2.50. The professional fees associated with the acquisition are P20,000 and
the issue costs of the shares are P10,000. The carrying value of the net assets of Doom Co. at the time of acquisition
is P150,000, which is equal to its fair value.
A contract exists whereby Riki Co. will buy certain components from Doom Co. over the next five years. The contract
was signed when market prices for these components were markedly higher than they are at the acquisition date. At
the acquisition date the fair value of the amount by which the contract prices are expected to exceed market prices over
the next five years is P1.5 million.
Required: Based on the above data, prepare the journal entries and compute the goodwill (gain) assuming:
Case No. 1: If Doom's profits for the first full year following acquisition exceed P2 million, Riki Co. will make an additional
cash consideration of P200,000 within one month after that year end. It is doubtful whether Doom Co. will achieve this
profit, hence the acquisition-date fair value of this contingent consideration is P100,000.
On July 15, 2020, the value of the contingent consideration is determined to be P125,000. This additional valuation is
related to facts and circumstances that existed as of the acquisition date.
On September 16, 2020, the value of the contingent consideration is revised to P129,000. This additional valuation is
not related to facts and circumstances that existed as of the acquisition date.
On October 1, 2020, Riki Co. receives the information it was seeking about facts and circumstances that existed as of
the acquisition date.
Doom's profits for the first full year is P2.5 million and settlement was made on January 15, 2021.
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