Assuming Rhine generates cash flow from operations of $27,200 in 2017, how will Harrison record the $16,500 payment of cash on April 15, 2018 in satisfaction of its contingent obligation?
A) Debit Contingent performance obligation $16,500, and Credit Cash $16,500.
B) Debit Contingent performance obligation $3,142, debit Loss from revaluation of contingent performance obligation $13,358, and Credit Cash $16,500.
C) Debit Investment in Subsidiary and Credit Cash, $16,500.
D) Debit Goodwill and Credit Cash, $16,500.
E) No entry.

Question

Quizplus · Accepted Answer

Harrison would record the payment of cash on April 15, 2018, in satisfaction of its contingent obligation by debiting the Contingent performance obligation account for $3,142 (the portion of the contingent obligation that was probable and estimable) and debiting the Loss from revaluation of contingent performance obligation account for the remaining $13,358 (the difference between the $16,500 cash payment and the $3,142 contingent performance obligation already recorded on the books). The Cash account would be credited for the full $16,500.

Assuming Rhine Generates Cash Flow from Operations of $27,200 in 2017