Question

Which of the following is false regarding contingent consideration in business combinations?

a.Contingent consideration payable in stock shares is reported under stockholders' equily
b.Contingent consideration payable in cash is reported under liablaties.
c.The contingent consideration fair value is recognized as part of the acquilstion regardiess of whether eventual payment is based on funure. performance of the target firm or future stock price of the acquiret.
d.Contingent consideration is recorded because of its substantal probability of eventwal poyment
e.Contingent consiceration is reflected in the ocquirers balance sheet at the present value of the potential expected future payment

Answer 1

The false statement regarding contingent consideration in business combinations is that contingent consideration payable in cash is reported under liabilities.

Step-by-step explanation:

The false statement regarding contingent consideration in business combinations is b. Contingent consideration payable in cash is reported under liabilities.

The correct treatment is that contingent consideration payable in cash is reported under stockholder's equity. Contingent consideration is recorded as part of the acquisition regardless of whether the eventual payment is based on the future performance of the target firm or the future stock price of the acquirer. It is recognized at its fair value and reflected on the acquirer's balance sheet at the present value of the potential expected future payment.