Discuss liability on parmas books at the date of acquisition

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As part of the acquisition agreement, Parma Corporation agrees to pay the former shareholders of Stow Company $0.40 in cash for every dollar of gross revenues above $4,500,000 reported at the end of the first year following acquisition. Parma projects the following gross revenues outcomes for the year:

Gross revenues

Probability

$3,500,000

0.05

4,500,000

0.30

5,500,000

0.20

6,500,000

0.25

7,500,000

0.20

Using a 6 percent discount rate, what is the appropriate value to be reported as an earnings contingency liability on Parma's books at the date of acquisition?

Reference no: EM131804687

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