Chaney aquires 100% of the voting shares of Roberts on January 1st 2010 in a transaction structured as an acquisition. Assume that using the acquisition method, goodwill of two, 000, 000 resulted. In addition to the initial payments to Roberts shareholders, Chaney agrees that if in 2 years, Roberts earnings increased by 40% Chaney will pay an additional 500, 000 to Roberts shareholders. At the date of acquisition, the probability of meeting this earnings target is viewed as 70%.
Problem a. Prepare the journal entry to be recorded by chaney on January 1st, 2010 (you may ignore the time value of money)
Problem b. Assume that at the end of 2012, Roberts earnings have increased by 50%. What entry is recorded by Chaney at the time.
Problem c. Assume that at the end of 2012 Roberts earnings have increased by 30%. What entry is recorded by Chaney at the time.