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 Winnieaccount for this contingent payment?

A provision is recognized by an organization if it seems likely that an outflow of money or other…

Answered: Winnie Corporation purchases Joshua…

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter18: Accounting Periods And Methods

Section: Chapter Questions

Problem 18DQ

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On October 1, 2019, Grahams WeedFeed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of 3,200. The contract does not include any stipulations for additional periods. On June 1, Grahams WeedFeed and BigData sign a new 12-month contract that is retroactive to April 1, 2020. The monthly fee for the new contract is 4,000 per month and is also retroactive to April 1, 2020. During April and May of 2020, while the new contract was being negotiated, Grahams Weed Feed continued to maintain the grounds, and BigData continued to pay 3,200 per month. BigData was satisfied with Grahams WeedFeeds performance, and the only issue during negotiations was the monthly fee. Required: Determine if a valid contract exists between Grahams WeedFeed and BigData during April and May 2020.

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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?