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on January
P720,000 cash. Sen Company’s December 31, 20x3 balance sheet, reflecting both book values and fair values showed:
Particulars Book value Fair value
Accounts receivable P72,000 P65,000
Inventory 86,000 99,000
Land 110,000 162,000
Buildings (net) 369,000 450,000
Equipment (net) 237,000 288,000
Total P874,000 P1,064,000
Accounts payable P83,000 P83,000
Notes payable 180,000 180,000
Common stock, P2 par 153,000
Other contributed capital 229,000
Retained earnings 229,000
Total P874,000
As part of negotiations, Pham Company agreed to pay the former stockholders of Sen Company P135,000 cash if the post
earnings of the combined company (Pham) reached certain levels during 20x4 and 20x5.
Required:
1. Record the journal entry on the books of Pham Company to record the acquisition on January 1, 20x4. It is expected tha
target is likely to be met. (Note: Include your computation of goodwil)
2. Assuming the earnings contingent is met, prepare the journal entry on Pham Company’s books to settle the contingenc
20x6
3. Assuming the earnings contingent is not met, prepare the necessary journal entry on Pham Company’s books on Janua
Sen Company on January 1, 20x4 paying Price Paid
nd fair values showed: Contingent Consideration
Total
Less: Fair Value of Net Assets
Assets:
Accounts Receivable 65,000
Inventory 99,000
Land 162,000
Buildings (net) 450,000
Equipment (net) 288,000
Liabilities:
Accounts Payable 83,000
P135,000 cash if the post combination Notes Payable 180,000
Requirement No.3
If the earnings contingent is not met:
Contingent Liability 135,000 135,000
Gain on contigent liability