Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 12

What are the accounting ramifications of each of the three following situations involving the payment of contingent consideration in an acquisition?
a. P Company issues 100,000 shares of its $50 fair value ($1 par) common stock as payment to buy S Company on January 1, 2011. P agrees to pay $100,000 cash two years later if S income exceeds an income target. The target is exceeded.
b. P Company issues 100,000 shares of its $50 fair value ($1 par) common stock as payment to buy S Company on January 1, 2011. P agrees to issue 10,000 additional shares of its stock two years later if S income exceeds an income target. The target is exceeded.
c. P Company issues 100,000 shares of its $50 fair value ($1 par) common stock as payment to buy S Company on January 1, 2011. P agrees to issue 5,000 additional shares two years later if the fair value of P shares falls below $50 per share. Two years later, the stock has a fair value below $50, and added shares are issued to S.