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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