Branson paid $573,200 cash for all of the outstanding common stock of Wolfpack, Inc., on January 1, 2020. On that date, the subsidiary had a book value of $430,000 (common stock of $200,000 and retained earnings of $230,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a $133,000 fair value. Any remaining excess fair value was considered goodwill. In negotiating the acquisition price, Branson also promised to pay Wolfpack's former owners an additional $44,000 if Wolfpack's income exceeded $150,000 total over the first two years after the acquisition. At the acquisition date, Branson estimated the probability-adjusted present value of this contingent consideration at $30,800. On December 31, 2020, based on Wolfpack's earnin to date, Branson increased the value of the contingency to $35,200. During the subsequent two years, Wolfpack reported the following amounts for income and dividends: Net Income $ 79,500 89,500 Dividends Declared $ 15,000 25,000 2020 2021 In keeping with the original acquisition agreement, on December 31, 2021, Branson paid the additional $44,000 performance fee to Wolfpack's previous owners. Prepare each of the following: a. Branson's entry to record the acquisition of the shares of its Wolfpack subsidiary. b. Branson's entries at the end of 2020 and 2021 to adjust its contingent performance obligation for changes in fair value and the December 31, 2021, payment. c. Prepare consolidation worksheet entries as of December 31, 2021, assuming that Branson has applied the equity method.

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

Chapter12: Intangibles

Section: Chapter Questions

Problem 18E

See similar textbooks

Related questions

Question

Branson paid $573,200 cash for all of the outstanding common stock of Wolfpack, Inc., on January 1, 2020. On that date, the
subsidiary had a book value of $430,000 (common stock of $200,000 and retained earnings of $230,000), although various
unrecorded royalty agreements (10-year remaining life) were assessed at a $133,000 fair value. Any remaining excess fair value was
considered goodwill.
In negotiating the acquisition price, Branson also promised to pay Wolfpack's former owners an additional $44,000 if Wolfpack's
income exceeded $150,000 total over the first two years after the acquisition. At the acquisition date, Branson estimated the
probability-adjusted present value of this contingent consideration at $30,800. On December 31, 2020, based on Wolfpack's earnings
to date, Branson increased the value of the contingency to $35,200.
During the subsequent two years, Wolfpack reported the following amounts for income and dividends:
Dividends Declared
$ 15,000
25,000
Net Income
$ 79,500
89,500
2020
2021
In keeping with the original acquisition agreement, on December 31, 2021, Branson paid the additional $44,000 performance fee to
Wolfpack's previous owners.
Prepare each of the following:
a. Branson's entry to record the acquisition of the shares of its Wolfpack subsidiary.
b. Branson's entries at the end of 2020 and 2021 to adjust its contingent performance obligation for changes in fair value and the
December 31, 2021, payment.
c. Prepare consolidation worksheet entries as of December 31, 2021, assuming that Branson has applied the equity method.
d. Prepare consolidation worksheet entries as of December 31, 2021, assuming that Branson has applied the initial value method.

Expert Solution

Step 1

Disclaimer:

“Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts for you. To get the remaining sub-part solved, please repost the complete question and mention the sub-parts to be solved.”

Introduction:

Journal entries are used to keep track of the financial transactions. To create a journal entry, you enter transaction details into your company's books. Your journal entries are entered into the general ledger in the second step of the accounting cycle. Every general ledger journal entry will include the nears, amount, affected accounts with account numbers, and a description. A reference number, such as a check number, and a short explanation of the transaction may also be included in the journal entry.

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions