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

question 94

Multiple Choice

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.
-If the combination transaction had taken place on January 1,2008,under SFAS 141,Business Combinations,what would Harrison have recorded as the acquisition price on that date?

• A)$400,000.
• B)$403,142.
• C)$406,000.
• D)$409,142.
• E)$416,500.

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Definitions:

Communications Gap

A mismatch between customers' expectations based on a company's promotional messages and the actual service or product delivered.

Standards Gap

The discrepancy that occurs when the perceived quality or performance of a product or service falls short of the expected or promised standards.

Knowledge Gap

The divergence in information that occurs when one party possesses more or superior information compared to another, often leading to unequal opportunities and outcomes.

Delivery Gap

The discrepancy between a company's service quality specification and the actual service delivery, often leading to customer dissatisfaction.