Reported as earnings contingency liability

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Reference no: EM131262515

As part of the acquisition agreement, Akron Corporation agrees to pay the former shareholders of Cleveland Company $0.65 in cash for every dollar of gross revenues above $7,000,000 reported at the end of the first year following acquisition. Akron projects the following gross revenues outcomes for the year:

Gross revenues Probability

$4,200,000 0.10

5,400,000 0.25

6,800,000 0.30

7,800,000 0.25

9,000,000 0.10

Using a 6.5 percent discount rate, what is the appropriate value to be reported as an earnings contingency liability on Akron's books at the date of acquisition?

Reference no: EM131262515

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