ALOY Company acquires 100% of the voting stock of BENNET Company on January 1, 2021 for P400,000 cash.  A contingent payment of P16,500 will be paid on April 15, 2022 if BENNET Company generates cash flows from operations of P27,000 or more next year.  ALOY Company estimates that there is a 20% probability that BENNET Company 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 ALOY Company record as the acquisition price on January 1, 2021

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

ALOY Company acquires 100% of the voting stock of BENNET Company on January 1, 2021 for P400,000 cash.  A contingent payment of P16,500 will be paid on April 15, 2022 if BENNET Company generates cash flows from operations of P27,000 or more next year.  ALOY Company estimates that there is a 20% probability that BENNET Company 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 ALOY Company record as the acquisition price on January 1, 2021?

Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Consolidations
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education