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| Branson paid $551,800 cash for all of the outstanding common stock of Wolfpack, Inc., on January 1, 2014. On that date, the subsidiary had a book value of $370,000 (common stock of $200,000 and retained earnings of $170,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a $183,000 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 $66,000 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 $46,200. On December 31, 2014, based on Wolfpack’s earnings to date, Branson increased the value of the contingency to $52,800. |
| During the subsequent two years, Wolfpack reported the following amounts for income and dividends: |
| Net Income | Dividends Declared | |||||
| 2014 | $ | 81,000 | $ | 15,000 | ||
| 2015 | 91,000 | 25,000 | ||||
| In keeping with the original acquisition agreement, on December 31, 2015, Branson paid the additional $66,000 performance fee to Wolfpack’s previous owners. |
| Prepare each of the following: (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)
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Question & Answer: Branson paid $551,800 cash for all of the outstanding common stock of Wolfpack, Inc., on January 1, 2014. On that date, the su…..
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