Big Co. acquires Little Co in a transaction to be accounted for as a merger....
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Accounting
Big Co. acquires Little Co in a transaction to be accounted for as a merger. Little Co. has the following trial balance information at the date of acquisition:
Book value
Fair value
Cash
10,000
10,000
Inventory
18,000
20,000
PPE
400,000
300,000
Accumulated depreciation
(120,000)
Goodwill
50,000
Accounts payable
30,000
30,000
Common stock
100,000
Retained earnings
228,000
Big Co pays $350,000 in cash for the acquisition. In addition to the immediate cash payment, Big also agrees to additional cash payments if certain sales growth targets are met after 3 years. The sales growth targets, the payments, and the estimated likelihood of hitting those targets is as follows:
Sales growth
Payout
Estimated likelihood
0-3%
0
30%
3.01 - 6%
30,000
30%
6.01% - 9%
60,000
25%
9.01%+
100,000
15%
At the end of 3 years, actual sales growth came in at 5%
1.What were the total liabilities recorded in the acquisition entry? (xx,xxx)
2. How much goodwill was recorded as part of this purchase? (xx,xxx)
3. How much cash was paid out after 3 years? (xx,xxx)
4.How much of a gain or loss was there on the contingent liability? ("xx,xxx gain" or "xx,xxx loss")
Can you please explain in calculations?
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