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  3. big co. acquires little co in a transaction to be

Big Co. acquires Little Co in a transaction to be accounted for as a merger....

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Accounting

Big Co. acquires Little Co in a transaction to be accounted for as a merger. Little Co. has the following trial balance information at the date of acquisition:

Book value Fair value
Cash 10,000 10,000
Inventory 18,000 20,000
PPE 400,000 300,000
Accumulated depreciation (120,000)
Goodwill 50,000
Accounts payable 30,000 30,000
Common stock 100,000
Retained earnings 228,000

Big Co pays $350,000 in cash for the acquisition. In addition to the immediate cash payment, Big also agrees to additional cash payments if certain sales growth targets are met after 3 years. The sales growth targets, the payments, and the estimated likelihood of hitting those targets is as follows:

Sales growth Payout Estimated likelihood
0-3% 0 30%
3.01 - 6% 30,000 30%
6.01% - 9% 60,000 25%
9.01%+ 100,000 15%

At the end of 3 years, actual sales growth came in at 5%

1.What were the total liabilities recorded in the acquisition entry? (xx,xxx)

2. How much goodwill was recorded as part of this purchase? (xx,xxx)

3. How much cash was paid out after 3 years? (xx,xxx)

4.How much of a gain or loss was there on the contingent liability? ("xx,xxx gain" or "xx,xxx loss")

Can you please explain in calculations?

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