REFERENCE: Ref.03_10 Beatty,Inc.acquires 100% of the Voting Stock of Gataux Company on Company

question 15

Multiple Choice

REFERENCE: Ref.03_10
Beatty,Inc.acquires 100% of the voting stock of Gataux Company on January 1,2009 for $500,000 cash.A contingent payment of $12,000 will be paid on April 1,2010 if Gataux generates cash flows from operations of $26,500 or more in the next year.Harrison estimates that there is a 30% probability that Rhine 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.
-Under SFAS 141 for purchase Business Combinations,what will Beatty record as the cost of the investment in Gataux if the purchase had occurred on January 1,2008?

• A)$500,000.
• B)$503,461.
• C)$512,000.
• D)$515,461.
• E)$526,500.

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