A business combination involves a contingent consideration. As a result, two years after the acquisition date, the acquirer was required to issue an additional 40,000 common shares at a time when the fair value of the common shares was $4 per share. What effect would this transaction have on the balance in the common shares account in the consolidated financial statements on the date of acquisition?
A) It would increase by $160,000.
B) It would not change.
C) It would decrease by $160,000.
D) It is not possible to determine the effect from the information provided.

Question

Quizplus · Accepted Answer

The contingent consideration was not included in the consideration transferred at the acquisition date, and therefore would not have affected the balance in the common shares account at that time. The issuance of additional common shares two years later would increase the total number of common shares outstanding, but would not affect the balance in the common shares account.

A Business Combination Involves a Contingent Consideration