Edina Company acquired the assets (except cash) and assumed the liabilities of Burns Company on January 1, 2016, paying $2,600,000 cash. Immediately prior to the acquisition, Burns Company's balance sheet was as follows: Edina Company agreed to pay Burns Company's former stockholders $200,000 cash in 2017 if post- combination earnings of the combined company reached $1,000,000 during 2016.
Required:
A. Prepare the journal entry necessary for Edina Company to record the acquisition on January 1, 2016. It is expected that the earnings target is likely to be met.
B. Prepare the journal entry necessary for Edina Company in 2017 assuming the earnings contingency was not met.

Question

Edina Company acquired the assets (except cash) and assumed the liabilities of Burns Company on January 1, 2016, paying $2,600,000 cash. Immediately prior to the acquisition, Burns Company's balance sheet was as follows:  Edina Company agreed to pay Burns Company's former stockholders $200,000 cash in 2017 if post- combination earnings of the combined company reached $1,000,000 during 2016.
Required:
A. Prepare the journal entry necessary for Edina Company to record the acquisition on January 1, 2016. It is expected that the earnings target is likely to be met.
B. Prepare the journal entry necessary for Edina Company in 2017 assuming the earnings contingency was not met.

Quizplus · Accepted Answer

The Answer of Edina Company acquired the assets (except cash) and assumed the liabilities of Burns Company on January 1, 2016, paying $2,600,000 cash. Immediately prior to the acquisition, Burns Company's balance sheet was as follows:  Edina Company agreed to pay Burns Company's former stockholders $200,000 cash in 2017 if post- combination earnings of the combined company reached $1,000,000 during 2016.
Required:
A. Prepare the journal entry necessary for Edina Company to record the acquisition on January 1, 2016. It is expected that the earnings target is likely to be met.
B. Prepare the journal entry necessary for Edina Company in 2017 assuming the earnings contingency was not met.

Edina Company Acquired the Assets (Except Cash) and Assumed the Liabilities