Problem

Kaplan Corporation acquired Star, Inc., on January 1,2012, by issuing 13,000 shares of com...

Kaplan Corporation acquired Star, Inc., on January 1,2012, by issuing 13,000 shares of com­mon stock with a $10 per share par value and a $23 market value. This transaction resulted in recognizing $62,000 of goodwill. Kaplan also agreed to compensate Star’s former owners for any difference if Kaplan’s stock is worth less than $23 on January 1,2013. On January 1,2013, Kaplan issues an additional 3,000 shares to Star’s former owners to honor the contingent con­sideration agreement. Which of the following is true?

a. The fair value of the number of shares issued for the contingency increases the Goodwill account at January 1,2013.

b. The parent’s additional paid-in capital from the contingent equity recorded at the acquisi­tion date is reclassified as a regular common stock issue on January1,2013.

c. All of the subsidiary’s asset and liability accounts must be revalued for consolidation pur­poses based on their fair values as of January 1,2013.

d. The additional shares are assumed to have been issued on January1,2012, so that a retro-. spective adjustment is required.

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