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Johnson paid a fixed consideration of $275,000 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 ($80,000, $115,000 respectively). Johnson uses a discount rate of 4%.

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

Book value

Fair value

Current assets

Plant assets

Liabilities

40,000

120,000

50,000

50,000

70,000

45,000

Previously unreported items identified as belonging to Willis:/nContracts under negotiation with potential customers

In-process research and development

Skilled workforce

Recent favorable press reports on Willis

Proprietary databases

Fair value

15,000

21,000

23,000

2,000

7,000

(i) Show your determination of the contingent consideration.

(ii) Show your determination the goodwill to be reported in this acquisition.