Polk issues common stock to acquire all the assets of the Sam Company on January 1, 2016.There is a contingent share agreement, which states that if the income of the Sam Division exceeds a certain level during 2016 and 2017, additional shares will be issued on January 1, 2018.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

Polk issues common stock to acquire all the assets of the Sam Company on January 1, 2016.There is a contingent share agreement, which states that if the income of the Sam Division exceeds a certain level during 2016 and 2017, additional shares will be issued on January 1, 2018.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.

Quizplus · Accepted Answer

Issuing additional shares under a contingent share agreement as part of an acquisition does not change the value of the assets acquired but affects the equity section of the balance sheet by reallocating amounts among equity accounts.

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