Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 20x5 for P400,000 cash. A contingent payment of P16,500 will be paid on April 15, 20x6 if Rhine generates cash flows from operations of P27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least P27,000 next year and uses an interest rate of 5% to incorporate the time value of money. The fair value of P16,500 at 5%, using a probability weighted approach is P3,142. What will Harrison record as the acquisition price on January 1, 20x5?
Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 20x5 for P400,000 cash. A contingent payment of P16,500 will be paid on April 15, 20x6 if Rhine generates cash flows from operations of P27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least P27,000 next year and uses an interest rate of 5% to incorporate the time value of money. The fair value of P16,500 at 5%, using a probability weighted approach is P3,142. What will Harrison record as the acquisition price on January 1, 20x5?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Harrison, Inc. acquires 100% of the voting stock of Rhine Company on
January 1, 20x5 for P400,000 cash. A contingent payment of P16,500 will be
paid on April 15, 20x6 if Rhine generates cash flows from operations of
P27,000 or more in the next year. Harrison estimates that there is a 20%
probability that Rhine will generate at least P27,000 next year and uses an
interest rate of 5% to incorporate the time value of money. The fair value
of P16,500 at 5%, using a probability weighted approach is P3,142. What
will Harrison record as the acquisition price on January 1, 20x5?
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