USA Deferred Consideration

Jul 17, 2018
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United States

This is my first time posting on the forum and I need some help with Journal Entries for a specific transaction I am working on for a client.

Company A is acquiring Company B for a total purchase price of $25 million which will close 8/1/18 (not exact date but wanting to keep clients confidentiality). Client B is owned by an investment firm, Company C.

$13 Million of the purchase price will be cash paid at closing to Company C and the remaining $12 Million will be deferred consideration. New company will be called AB post close.

Company B is currently completing a large 2 year/$100 Million manufacturing project for Company C and is still owed $12M as the final payment upon delivery. This project is expected to be completed in May'19.

In May, Company C will pay $12M to Company AB for the completion of the project. Company AB will then deliver the finished product and pay the $12M deferred consideration to Company C.

From what I can tell, since this is not a contingent consideration or earn out it shouldn't be classified as a liability. What I have found so far in FASB ASC 805 is that it should be treated as equity. The journal entries below are my best guess but I'm unsure of the exact accounts to use etc. Any help on these Journal entries necessary at close of acquisition and at delivery of the product would be extremely helpful. Hopefully this makes sense as I don't want to violate my clients privacy so I am keeping it as vague as possible.

8//18 Dr. Deferred Consideration $12,000,000
Cr. Equity (Retained Earnings or APIC?) $12,000,000
5/19 Dr. Cash (received as payment for finishing project) $12,000,000
Cr. Revenue $12,000,000
5/19 Dr. ????? $12,000,000
Cr. Cash $12,000,000



VIP Member
May 12, 2011
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United States
At 8/18 you have to record the purchase of the whole company, not just what you paid for in cash
DR Investment in Sub $25
CR Cash <13>
CR Note Payable <12>
At 5/19 there should have been a receivable for the $12M but if not , ok, then record the revenue
Cash $12
Revenue <$12>
Next you pay your note
Note Payable $12
Cash <$12>

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