Beatty, Inc

Multiple Choice

Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2012 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2013 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.
What will Beatty record as its Investment in Gataux on January 1, 2012?

A) $500,000.
B) $503,461.
C) $512,000.
D) $515,461.
E) $526,500.