Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2017 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2018 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 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 Harrison record as its Investment in Rhine on January 1, 2017?
A. $406,000.
B. $400,000.
C. $409,142.
D. $403,142.
E. $416,500.
Answer: D
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