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Asset Purchase, Contingent Consideration
Pritano Company acquired all the net assets of Succo Company on December 31, 2010, for $2,160,000 cash. The balance sheet of Succo Company immediately prior to the acquisition showed:
Book value
Fair value
Current assets
$ 960,000
$ 960,000
Plant and equipment
1,080,000
1,440,000
Total
$2,040,000
$2,400,000
Liabilities
$ 180,000
$ 216,000
Common stock
480,000
Other contributed capital
600,000
Retained earnings
780,000
Total
$2,040,000
As part of the negotiations, Pritano agreed to pay the stockholders of Succo $360,000 cash if the postcombination earnings of Pritano averaged $2,160,000 or more per year over the next two years.
Required:
Prepare the journal entries on the books of Pritano to record the acquisition on December 31, 2010. It is expected that the earnings target is likely to be met.
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