Gull Company purchased the net assets of the Hart Company on January 1, 2011, and made the following entry to record the purchase:
Current Assets $100,000
Equipment $150,000
Land $50,000
Buildings $300,000
Goodwill $100,000
Liabilities $80,000
Common Stock ($1 par) $100,000 Paid-In Capital in Excess of Par $520,000
Make the required entry on January 1, 2013, for each of the following independent contingency agreements:
1. An additional cash payment will be made on January 1, 2013, equal to twice the amount by which the average annual earnings of the Hart Division exceed $25,000 per year, prior to January 1, 2013. Net Income was $50,000 in 2011 and $60,000 in 2012. Assume that the liabilities recorded on January 1, 2011, included an estimated contingent liability recorded at an estimated amount of $40,000.