Jun Zen Ralph Yap BSA – 3rd Year

Let’s Analyze

Activity 1. Peter Corporation is contemplating the acquisition of the net assets of Sam Company on
December 31, 2020. It is considering making an offer, which would include a cash payout of P400,000
along with giving 15,000 shares of its P4 par value common stock that is currently selling for P40 per
share. Peter Corporation also agrees that it will pay an additional P100,000 on January 1 , 2023, if the
average net income of Sam's business unit exceeds P160,000 for 2021 and 2022. The likelihood of
reaching that target is estimated to be 75%.

The Statement of Financial Position of Sam Company along with estimated fair values of the net assets
to be acquired is as follows.

Required:

1. Prepare the entry on the books of Peter Corporation to record the acquisition of Sam Company.

A
. Current Assets 256,000

Non-current Assets 660,000

Goodwill 761,000

Current Liabilities 162,000

Non-current Liabilities 440,000

Cash 400,000
Common Stock
 60,000

Additional Paid-in Capital - CS 540,000

Contingent Consideration Liability 75,000

To record the acquisition of net assets of Sam Company

Consideration Transferred

Cash 400,000

Shares Issuance 600,000

Contingent Consideration (100,000 X 75%) 75,000

Total 1,075,000
Less: Fair Value of Net Assets

Current Assets 256,000

Noncurrent Assets 660,000

Less: Current Liabilities 162,000

Non-current
Liabilities 440,000 314,000

Goodwill 761,000

2. Assume the net income of Sam Company is P240,000 for 2023. As a result, the likelihood of
paying the contingent consideration is believed to be 90%. What adjusting entry is required as of
December 31, 2023, if any?

A
. Loss on Contingent Consideration Liability 15,000

Contingent Consideration Liability 15,000

To adjust the estimate of paying the contingent consideration

New Estimate For Contingent Consideration (100000 X 90%) 90,000

Less: Recognized Contingent Consideration during the acquisition 75,000

Increase in Contingent Consideration Payable 15,000