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In: Accounting

Johnson paid $325,000 to acquire 100% of Willis Corporation in a statutory merger. In addition, Johnson...

Johnson paid $325,000 to acquire 100% of Willis Corporation in a statutory merger. In addition, Johnson also agreed to pay the shareholders of Willis $0.40 in cash for every dollar in income from continuing operations of the combined entity over $75,000 in the first three years following acquisition. Johnson projects that there is a 20% (45%, 35%) probability that the income from continuing operations in the first three years following acquisition is $65,000 ($90,000, $115,000 respectively). Johnson uses a discount rate of 7%.

Information for Willis Corporation immediately before the merger was as follows:

Book value

Fair value

Current assets

   40,000

50,000

Plant assets

120,000

70,000

Liabilities

   50,000

45,000

Previously unreported items identified as belonging to Willis:

Fair value

Contracts under negotiation with potential customers

15,000

In-process research and development

12,000

Skilled workforce

23,000

Recent favorable press reports on Willis

   2,000

Proprietary databases

   8,000
  1. Show your determination of the contingent consideration.
  2. Show your determination the goodwill to be reported in this acquisition.

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Expert Solution

ekkarill92 answered 4 months ago
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