Advanced Accounting 10th Edition by Thomas Schaefer, Joe Ben Hoyle, Timothy Doupnik

Exercise 45

Dosmann, Inc., bought all outstanding shares of Lizzi Corporation on January 1, 2011, for $700,000 in cash.This portion of the consideration transferred results in a fair-value alloca­tion of $35,000 to equipment and goodwill of $88,000.At the acquisition date, Dosmann also agrees to pay Lizzi's previous owners an additional $110,000 on January 1,2013, if Lizzi earns a 10 percent return on the fair value of its assets in 2011 and 2012.Lizzi's profits exceed this threshold in both years.Which of the following is true a. The additional $110,000 payment is a reduction in consolidated retained earnings.
B) The fair value of the expected contingent payment increases goodwill at the acquisition date.
C) Consolidated goodwill as of January 1,2013, increases by $110,000.
D) The $110,000 is recorded as an expense in 2013.