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
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
Chapter7: Corporations: Reorganizations
Section: Chapter Questions
Problem 44P
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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?
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