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recorded royalty agreements (10-year remaining life) were assessed at a $135,000 fair value. Ar msidered goodwill. negotiating the acquisition price, Branson also promised to pay Wolfpack's former owners an a ome exceeded $110,000 total over the first two years after the acquisition. At the acquisition da obability-adjusted present value of this contingent consideration at $38,500. On December 31, 2 date, Branson increased the value of the contingency to $44,000. ring the subsequent two years, Wolfpack reported the following amounts for income and divide 2020 2021 Net Income $ 58,000 68,000 Dividends Declared $ 10,000 20,000

recorded royalty agreements (10-year remaining life) were assessed at a $135,000 fair value. Ar msidered goodwill. negotiating the acquisition price, Branson also promised to pay Wolfpack's former owners an a ome exceeded $110,000 total over the first two years after the acquisition. At the acquisition da obability-adjusted present value of this contingent consideration at $38,500. On December 31, 2 date, Branson increased the value of the contingency to $44,000. ring the subsequent two years, Wolfpack reported the following amounts for income and divide 2020 2021 Net Income $ 58,000 68,000 Dividends Declared $ 10,000 20,000

FINANCIAL ACCOUNTING
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 $539,500 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 $378,000 (common stock of $200,000 and retained earnings of $178,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a $135,000 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 $55,000 if Wolfpack's income exceeded $110,000 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 $38,500. On December 31, 2020, based on Wolfpack's earnings to date, Branson increased the value of the contingency to $44,000. During the subsequent two years, Wolfpack reported the following amounts for income and dividends: Dividends Declared 2020 2021 Net Income $ 58,000 68,000 $10,000 20,000 In keeping with the original acquisition agreement, on December 31, 2021, Branson paid the additional $55,000 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.
Transcribed Image Text:Branson paid $539,500 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 $378,000 (common stock of $200,000 and retained earnings of $178,000), although various unrecorded royalty agreements (10-year remaining life) were assessed at a $135,000 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 $55,000 if Wolfpack's income exceeded $110,000 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 $38,500. On December 31, 2020, based on Wolfpack's earnings to date, Branson increased the value of the contingency to $44,000. During the subsequent two years, Wolfpack reported the following amounts for income and dividends: Dividends Declared 2020 2021 Net Income $ 58,000 68,000 $10,000 20,000 In keeping with the original acquisition agreement, on December 31, 2021, Branson paid the additional $55,000 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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