Problem: Chaney acquires 100% of the voting shares of Roberts on January 1, 2010 in a transaction structured as an acquisition. Assume that using the acquisition method, goodwill of $2,000,000 resulted. In addition to the initial payment to Roberts shareholders, Chaney agrees that if in 2 years, Roberts earnings increase by 40%, Chaney will pay an additional $500,000 to Roberts shareholder. At the date of acquisition, the probability of meeting this earnings target is viewed as 70%.
a. Prepare the journal entry to be recorded by Chaney on January 1, 2014 (you may ignore the time value of money).
b. Assume that at the end of 2012, Roberts earning have increased by 50%. What entry is recorded by Chaney at that time?
c. Assume that at the end of 2012, Roberts earning have increased by 30%. What entry is recorded by Chaney at that time?