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

question 37

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.
-Assuming Rhine generates cash flow from operations of $27,200 in 2009,how will Harrison record the $16,500 payment of cash on April 15,2010 according to SFAS 141(R) ?

• A)Debit Contingent performance obligation $16,500,and Credit Cash $16,500.
• B)Debit Contingent performance obligation $3,142,debit Loss from 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.

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Definitions:

Report

A Report is a detailed written or spoken account of something that has been observed, checked, or investigated, often used to convey information in business, research, or news contexts.

Dorsal Roots

Nerve fibers that carry sensory information from the body to the spinal cord, part of the central nervous system.

Ventral Roots

The efferent motor root of a spinal nerve, through which motor neurons exit the spinal cord.

Spinal Nerves

Nerves that emerge from the spinal cord, crucial for transmitting motor, sensory, and autonomic signals between the spinal cord and the body.