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QUESTION 9 Emily, Inc acquires 100% of the voting stock of Sara Company on January 1, 2017 for $400,000 cash. A contingent payment of $16,500
QUESTION 9 Emily, Inc acquires 100% of the voting stock of Sara Company on January 1, 2017 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2018 if Sara generates cash flows from operations of $27,000 or more in the next year. Emily estimates that there is a 20% probability that Sara will generate at least 527,000 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 Emily record as its Investment in Sara on January 1, 2017? $400,000 $406,000 $403,142 $416,500 5409,142
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