Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at least $26,500 next year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of $12,000 at 4%, using a probability weighted approach, is $3,461.
-When recording consideration transferred for the acquisition of Gataux on January 1, 2010, Beatty will record a contingent performance obligation in the amount of:

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When Beatty acquires Gataux, they will initially record the consideration transferred as $500,000 in cash. However, since there is a contingent payment of $12,000, they will also need to record a contingent performance obligation. This obligation is recorded at fair value at the date of acquisition, which is $3,461 using a probability weighted approach. Therefore, the total consideration transferred on January 1, 2010 will be $500,000 + $3,461 = $503,461.