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    Uloc Answer Key Let's Check: A. Contingent Considerations

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    zee abadilla
    JJ Company acquired the net assets of GTG Company on January 1, 2019 for ₱2.4 million. Additional contingent consideration was possible based on earnings targets. The estimated contingent liability was ₱160,000. By December 21, 2019 the estimate had increased to ₱200,000. To calculate goodwill, the consideration transferred of ₱2.56 million (₱2.4 million + ₱160,000 contingent liability) is compared to the net assets of ₱2.08 million, resulting in initial goodwill of ₱480,000. The increase of ₱40,000 in the contingent liability estimate results in goodwill of

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    Uloc Answer Key Let's Check: A. Contingent Considerations

    Uploaded by

    zee abadilla
    563 views2 pages
    JJ Company acquired the net assets of GTG Company on January 1, 2019 for ₱2.4 million. Additional contingent consideration was possible based on earnings targets. The estimated contingent liability was ₱160,000. By December 21, 2019 the estimate had increased to ₱200,000. To calculate goodwill, the consideration transferred of ₱2.56 million (₱2.4 million + ₱160,000 contingent liability) is compared to the net assets of ₱2.08 million, resulting in initial goodwill of ₱480,000. The increase of ₱40,000 in the contingent liability estimate results in goodwill of

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    ULOc ANSWER KEY

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    ULOc ANSWER KEY

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    JJ Company acquired the net assets of GTG Company on January 1, 2019 for ₱2.4 million. Additional contingent consideration was possible based on earnings targets. The estimated contingent liability was ₱160,000. By December 21, 2019 the estimate had increased to ₱200,000. To calculate goodwill, the consideration transferred of ₱2.56 million (₱2.4 million + ₱160,000 contingent liability) is compared to the net assets of ₱2.08 million, resulting in initial goodwill of ₱480,000. The increase of ₱40,000 in the contingent liability estimate results in goodwill of

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    563 views2 pages

    Uloc Answer Key Let's Check: A. Contingent Considerations

    Uploaded by

    zee abadilla
    JJ Company acquired the net assets of GTG Company on January 1, 2019 for ₱2.4 million. Additional contingent consideration was possible based on earnings targets. The estimated contingent liability was ₱160,000. By December 21, 2019 the estimate had increased to ₱200,000. To calculate goodwill, the consideration transferred of ₱2.56 million (₱2.4 million + ₱160,000 contingent liability) is compared to the net assets of ₱2.08 million, resulting in initial goodwill of ₱480,000. The increase of ₱40,000 in the contingent liability estimate results in goodwill of

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    © All Rights Reserved
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    ULOc ANSWER KEY

    Let’s Check

    1. Which of the following is included as part of the consideration given?


    a. Contingent considerations
    b. All expenses and liabilities relating to the acquisition
    c. Direct and indirect acquisition costs attributable to the acquisition
    d. Indirect costs and contingent consideration
    2. An obligation of the acquirer to transfer additional assets or equity interests to
    the former owners of an acquire as part of the exchange for control of the letter if
    specified conditions are met:
    a. Goodwill
    b. Gain from acquisition
    c. Acquisition expense
    d. Contingent liability

    Let’s Analyze
    JJ Company acquired the net assets of GTG Company on January 1, 2019. Below are
    the account balances of GTG Company as of January 1, 2019:

    Current assets ₱400,000


    Equipment 600,000
    Land 200,000
    Building 1,200,000
    Liabilities (320,000)
    ₱2,080,00
    Net assets 0

    JJ Company paid 2.4 million for the net assets of GTG Company. In addition, additional
    cash payment would be made on January 1, 2021 if the average earnings of GTG
    Company exceed 100,000 per year. Net income was 200,000 in 2019 and 240,000 in
    2020. Assume that the liabilities recorded on January 1, 2019 include an estimated
    contingent liability recorded at ₱160,000.

    On December 21, 2019, it was noted that GTG Company may generate revenue more
    than what is expected, hence, the estimated contingent liability was increased to
    ₱200,000.

    How much goodwill should be recorded as of December 31, 2019?


    ANSWER:

    January 1, 2019

    Consideration ₱2,400,00
    transferred 0
    Contingent liability 160,000 ₱2,560,000
    Net assets 2,080,000
    Goodwill ₱480,000

    Journal entry to record the acquisition:

    Current Assets ₱400,000


    Equipment 600,000
    Land 200,000
    Building 1,200,000
    Goodwill 480,000
    Liabilities ₱320,000
    Cash 2,400,000
    Contingent liability 160,000

    If there was no change in estimation of contingent liability, goodwill should have been
    recorded at 480,000.

    December 21, 2019


    Revised estimate ₱200,000
    Original estimate 160,000
    Increase in estimate ₱40,000

    Journal entry to record the increase in estimate of contingent liability:

    Goodwill ₱40,000
    Contingent liability ₱40,000

    Needless to say, as of December 31, 2019, goodwill and contingent liability should be
    recorded at ₱520,000 and ₱200,000, respectively.

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