On january 1 2010 lauren issues an additional 3000 shares, Ask an Expert

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Lauren Corporation acquired Sarah, Inc., on January 1, 2009, by issuing 13,000 shares of common stock with a $10 per share par value and a $23 market value. This transaction resulted in recording $62,000 of goodwill. Lauren also agreed to compensate Sarah's former owners for any difference if Lauren's stock is worth less than $23 on January 1, 2010. On January 1, 2010, Lauren issues an additional 3,000 shares to Sarah's former owners to honor the contingent consideration agreement. Under SFAS 141R, which of the following is true?

a. The fair value of the expected number of shares to be issued for the contingency increases the Goodwill account balance at the date of acquisition.

b. The Investment account balance is not affected, but the parent's Additional Paid-In Capital is reduced by the par value of the extra 3,000 shares when issued.

c. All of the subsidiary's asset and liability accounts must be revalued for consolidation purposes based on their fair values as of January 1, 2011.

d. The additional shares are assumed to have been issued on January 1, 2009, so that a retrospective adjustment is required.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M967061

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