Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010 for $400,000 cash

QUESTION:

Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010, for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011, if the Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that the Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability-weighted approach, is $3,142.

What will Harrison record as its Investment in the Rhine on January 1, 2010?

A. $400,000

B. $403,142

C. $406,000

D. $409,142

E. $416,500

ANSWER:

B. $403,142.

Harrison will record a contingent performance obligation for the amount of $3,142
Entry at the time of payment of 16,500 would have been
Contingent performance obligation Dr    3,142.00
Loss from the revaluation of the contingent performance obligation   13,358.00
To Cash A/C   16,500.00
Thus the amount of investment would be 400,000+ 3,142 = 403,142 since Harrison will record a contingent performance obligation for the amount of $3,142

 

That is so great to hear. We really try our best to provide you the quality content. And thank you so much for taking the time to provide your feedback. Complaints


 
0 / 5

Your page rank:

Related Articles

Responses

Your email address will not be published. Required fields are marked *