Branson paid $573,200 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 $430,000 (common stock of $200,000 and retained earnings of $230,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a $133,000 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 $44,000 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 $30,800. On December 31, 2020, based on Wolfpack's earnin to date, Branson increased the value of the contingency to $35,200. During the subsequent two years, Wolfpack reported the following amounts for income and dividends: Net Income $ 79,500 89,500 Dividends Declared $ 15,000 25,000 2020 2021 In keeping with the original acquisition agreement, on December 31, 2021, Branson paid the additional $44,000 performance fee to Wolfpack's previous owners. Prepare each of the following: a. Branson's entry to record the acquisition of the shares of its Wolfpack subsidiary. b. 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. c. Prepare consolidation worksheet entries as of December 31, 2021, assuming that Branson has applied the equity method.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Branson paid $573,200 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 $430,000 (common stock of $200,000 and retained earnings of $230,000), although various
unrecorded royalty agreements (10-year remaining life) were assessed at a $133,000 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 $44,000 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 $30,800. On December 31, 2020, based on Wolfpack's earnings
to date, Branson increased the value of the contingency to $35,200.
During the subsequent two years, Wolfpack reported the following amounts for income and dividends:
Dividends Declared
$ 15,000
25,000
Net Income
$ 79,500
89,500
2020
2021
In keeping with the original acquisition agreement, on December 31, 2021, Branson paid the additional $44,000 performance fee to
Wolfpack's previous owners.
Prepare each of the following:
a. Branson's entry to record the acquisition of the shares of its Wolfpack subsidiary.
b. 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.
c. Prepare consolidation worksheet entries as of December 31, 2021, assuming that Branson has applied the equity method.
d. Prepare consolidation worksheet entries as of December 31, 2021, assuming that Branson has applied the initial value method.

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Journal entries are used to keep track of the financial transactions. To create a journal entry, you enter transaction details into your company's books. Your journal entries are entered into the general ledger in the second step of the accounting cycle. Every general ledger journal entry will include the nears, amount, affected accounts with account numbers, and a description. A reference number, such as a check number, and a short explanation of the transaction may also be included in the journal entry.

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