Dosmann, Inc., bought all outstanding shares of Lizzi Corporation on January 1, 2016, for $700,000 in cash.

Question:

Dosmann, Inc., bought all outstanding shares of Lizzi on January 1, 2016, for $700,000 in cash. This portion of the consideration transferred results in a fair-value allocation of $35,000 to equipment and of $88,000. At the acquisition date, Dosmann also agrees to pay Lizzi's previous owners an additional $110,000 on January 1, 2018, if Lizzi earns a 10 percent return on the fair value of its assets in 2016 and 2017. Lizzi's profits exceed this threshold in both years. Which of the following is true?
a. The additional $110,000 payment is a reduction in consolidated retained earnings.
b. The fair value of the expected contingent payment increases at the acquisition date.
c. Consolidated as of January 1, 2018, increases by $110,000.
d. The $110,000 is recorded as an expense in 2018.
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