Branson paid $566,700 cash for all of the outstanding common stock of Wolfpack, Incorporated, on January 1, 2023. On that date, the subsidiary had a book value of $411,000 (common stock of $200,000 and retained earnings of $211,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a $136,000 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 $59,000 if Wolfpack’s income exceeded $130,000 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 $41,300. On December 31, 2023, based on Wolfpack’s earnings to date, Branson increased the value of the contingency to $47,200. During the subsequent two years, Wolfpack reported the following amounts for income and dividends: Year Net Income Dividends Declared 2023 $ 71,000 $ 20,000 2024 81,000 30,000 In keeping with the original acquisition agreement, on December 31, 2024, Branson paid the additional $59,000 performance fee to Wolfpack’s previous owners. Prepare consolidation worksheet entries as of December 31, 2024, assuming that Branson has applied the initial value method. Prepare Entry C* to convert parent's beginning retained earnings to full accrual basis on December 31, 2024. Prepare Entry S to record the elimination of common stock and retained earnings on December 31, 2024. Prepare Entry A to record the acquisition-date excess fair values over book values, unamortized balances as of beginning of year on December 31, 2024. Prepare Entry I to record the accrual of equity earnings on December 31, 2024. Prepare Entry D to record the dividends declared on December 31, 2024. Prepare Entry E to record excess fair-value amortization expenses on December 31, 2024.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Branson paid $566,700 cash for all of the outstanding common stock of Wolfpack, Incorporated, on January 1, 2023. On that date, the subsidiary had a book value of $411,000 (common stock of $200,000 and retained earnings of $211,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a $136,000 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 $59,000 if Wolfpack’s income exceeded $130,000 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 $41,300. On December 31, 2023, based on Wolfpack’s earnings to date, Branson increased the value of the contingency to $47,200.

During the subsequent two years, Wolfpack reported the following amounts for income and dividends:

Year	Net Income	Dividends Declared
2023	$ 71,000	$ 20,000
2024	81,000	30,000

In keeping with the original acquisition agreement, on December 31, 2024, Branson paid the additional $59,000 performance fee to Wolfpack’s previous owners.

Prepare consolidation worksheet entries as of December 31, 2024, assuming that Branson has applied the initial value method.

Prepare Entry C* to convert parent's beginning retained earnings to full accrual basis on December 31, 2024.
Prepare Entry S to record the elimination of common stock and retained earnings on December 31, 2024.
Prepare Entry A to record the acquisition-date excess fair values over book values, unamortized balances as of beginning of year on December 31, 2024.
Prepare Entry I to record the accrual of equity earnings on December 31, 2024.
Prepare Entry D to record the dividends declared on December 31, 2024.
Prepare Entry E to record excess fair-value amortization expenses on December 31, 2024.

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