Acquisition with contingent consideration. Holt Corporation is contemplating the acquisition of Sambo Company’s net assets on December 31, 2015. It is considering making an offer, which would include...

Acquisition with contingent consideration. Holt Corporation is contemplating the acquisition of Sambo Company’s net assets on December 31, 2015. It is considering making an offer, which would include a cash payout of $225,000 along with giving 15,000 shares of its $2 par value common stock that is currently selling for $20 per share. Holt also agrees that it will pay an additional $50,000 on January 1, 2018, if the average net income of Sambo’s business unit exceeds $80,000 for 2016 and 2017. The likelihood of reaching that target is estimated to be 60%. The balance sheet of Sambo Company is given below, along with estimated fair values of the net assets to be acquired.

1. Do value analysis and prepare the entry on the books of Holt Corporation to record the acquisition of Sambo Company.

2. Assume that the net income of the Sambo business unit is $120,000 for 2016. As a result, the likelihood of paying the contingent consideration is believed to be 90%. What, if any, adjusting entry is required as of December 31, 2016?