Polk issues common stock to acquire all the assets of the Sam Company on January 1, 20X5. There is a contingent share agreement, which states that if the income of the Sam Division exceeds a certain level during 20X5 and 20X6, additional shares will be issued on January 1, 20X7. The impact of issuing the additional shares is to
A)increase the price assigned to fixed assets.
B)have no effect on asset values, but to reassign the amounts assigned to equity accounts.
C)reduce retained earnings.
D)record additional goodwill.

Question

Quizplus · Accepted Answer

An agreement to issue added stock upon the occurrence of a future event is considered to be a change in the estimate of the value of shares issued. The only entry made is at the date of the added stock issue to reassign the original consideration assigned to the stock to a greater number of shares. This typically results in an entry to increase the Common Stock account and decrease Paid-in Capital in Excess of Par.

Polk Issues Common Stock to Acquire All the Assets of the Sam