Question - 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 like to be met.