Here are the reasons that I suggest to make that general entry:
Determine Consideration Transferred
To acquire 80% of the outstanding common stock of Baked Beans Corp, the amount of consideration Allfoods Corp. transferred is: (in millions) (1) Cash 40 (2) Common Stock 70 (3) Contingient Consideration 20 (4) -------------------------------------------------
Cost of precobination option exchange 5 Total 135
(2) Common stock (C/S) is 2 million shares at $35/share. (3) Contingent consideration is recorded at fair value at acquisition-date.
(ASC 805-30-Currently Viewing:805 Business Combinations25-5) In this case, the contingent consideration is classified as equity since it settled in shares. (ASC 815-40-25-4) The contingient consideration goes into additional paid in capital account (APIC) on the Allfoods’ balance sheet. (4) Exchange of share options in conjunction with a business combination is modification of share-based payment awards. The portion attributable to precombination service is part of the consideration transferred. (ASC 805-30-30) The underlying shares for stock options are not liabilities and there is no cash settlement, so the exchange of stock option is classified as an equity (ASC 718-10-25-11), and