Harrison inc acquires 100 of the voting stock of rhine, Ask an Expert

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Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011 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.

What will Harrison record as its Investment in Rhine on January 1, 2010?

A. $400,000

B. $403,142

C. $406,000

D. $409,142

E. $416,500

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Financial Accounting, Accounting

Category:- Financial Accounting
Reference No.:- M91526877

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