Branson paid $540,800 cash for all of the outstanding common stock of Wolfpack, Inc., on January 1, 2020. On that date, the subsidiary had a book value of $390,000 (common stock of $200,000 and retained earnings of $190,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a $126,000 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 $36,000 if Wolfpack’s income exceeded $140,000 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 $25,200. On December 31, 2020, based on Wolfpack’s earnings to date, Branson increased the value of the contingency to $28,800. During the subsequent two years, Wolfpack reported the following amounts for income and dividends: Net Income Dividends Declared 2020 $ 72,900 $ 15,000 2021 82,900 25,000
Branson paid $540,800 cash for all of the outstanding common stock of Wolfpack, Inc., on January 1, 2020. On that date, the subsidiary had a book value of $390,000 (common stock of $200,000 and
In negotiating the acquisition price, Branson also promised to pay Wolfpack’s former owners an additional $36,000 if Wolfpack’s income exceeded $140,000 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 $25,200. On December 31, 2020, based on Wolfpack’s earnings to date, Branson increased the value of the contingency to $28,800.
During the subsequent two years, Wolfpack reported the following amounts for income and dividends:
| Net Income | Dividends Declared | |||||
| 2020 | $ | 72,900 | $ | 15,000 | ||
| 2021 | 82,900 | 25,000 | ||||
In keeping with the original acquisition agreement, on December 31, 2021, Branson paid the additional $36,000 performance fee to Wolfpack’s previous owners.
Prepare each of the following:
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Branson’s entry to record the acquisition of the shares of its Wolfpack subsidiary.
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Branson’s entries at the end of 2020 and 2021 to adjust its contingent performance obligation for changes in fair value and the December 31, 2021, payment.
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Prepare consolidation worksheet entries as of December 31, 2021, assuming that Branson has applied the equity method.
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Prepare consolidation worksheet entries as of December 31, 2021, assuming that Branson has applied the initial value method.
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