Please explain why answer B is correct and write out the entry to record this event. Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2017 for $80.000, consisting of $20,000 in cash and 6,000 shares of stock. A contingent payment of $12,000 in cash will be paid on April 1, 2018 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux 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. A contingent payment of $20,000, payable in stock, will be paid to the former owners of Gateaux on April 1, 2018 if the market value of Beatty stock drops below $10 per share. Beatty estimates there is a 15% probability that its share price will not exceed that threshold. Using the same interest rate and probability-weighted approach, Beatty calculates the market value of the stock contingency to be $2,884. 76. Using the acquisition method, how will Beatty record the stock contingency? A) Credit Contingent Performance Obligation, $20,000. B) Debit Additional Paid-In Capital, $20,000. C) Credit Additional Paid-In Capital, $2,884. D) Debit Contingent Performance Obligation, $2.884. E) No entry. Answer: B Please explain why answer B is correct and write out the entry to record this event. Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2017 for $80.000, consisting of $20,000 in cash and 6,000 shares of stock. A contingent payment of $12,000 in cash will be paid on April 1, 2018 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux 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. A contingent payment of $20,000, payable in stock, will be paid to the former owners of Gateaux on April 1, 2018 if the market value of Beatty stock drops below $10 per share. Beatty estimates there is a 15% probability that its share price will not exceed that threshold. Using the same interest rate and probability-weighted approach, Beatty calculates the market value of the stock contingency to be $2,884. 76. Using the acquisition method, how will Beatty record the stock contingency? A) Credit Contingent Performance Obligation, $20,000. B) Debit Additional Paid-In Capital, $20,000. C) Credit Additional Paid-In Capital, $2,884. D) Debit Contingent Performance Obligation, $2.884. E) No entry. Answer: B