Question
SAMSAN TECH acquires 100% of the voting stock of MORNING Co on January 1, 2018 for 400,000 cash. A contingent payment of 16,500 will be
SAMSAN TECH acquires 100% of the voting stock of MORNING Co on January 1, 2018 for 400,000 cash. A contingent payment of 16,500 will be paid on April 1, 2019 if MORNING generates cash flows from operations of 27,000 or more in the next year. SAMSAN estimates that there is a 20% probability that MORNING will generate at least 27,000 or more in the 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.
Determine the amount SAMSAN will record as investment in subsidiary on January 1, 2017
a)400,000
b)416,500
c)427,000
d)403,142
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