REFERENCE: Ref.03_09
Harrison,Inc.acquires 100% of the voting stock of Rhine Company on January 1,2009 for $400,000 cash.A contingent payment of $16,500 will be paid on April 15,2010 if Rhine generates cash flows from operations of $27,000 or more in the next year.Harrison estimates that there is a 20% probability that 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.
-Under SFAS 141(R),what will Harrison record as the acquisition price on January 1,2009?

Question

Quizplus · Accepted Answer

The acquisition price on January 1, 2009 will be $403,142 ($400,000 + ($16,500 x 0.2 x 0.975)). This is because the contingent payment of $16,500 is incorporated into the final purchase price using a probability-weighted approach and the time value of money at an interest rate of 5%.

REFERENCE: Ref.03_09 Harrison,Inc.acquires 100% of the Voting Stock of Rhine Company on Company