When a Contingent Consideration Arising from a Business Combination Is

question 31

Multiple Choice

When a contingent consideration arising from a business combination is classified as a liability, how is any change in its fair value as a result of new information about the facts and circumstances that existed at the acquisition date accounted for if identified and measured within one year subsequent to the acquisition date?

• A) As an adjustment to the consideration paid for the subsidiary.
• B) As an adjustment to an estimate included in the determination of net income.
• C) As a direct adjustment to consolidated retained earnings.
• D) As an adjustment to consolidated contributed surplus.

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Definitions:

Income Statement

A financial report that provides a summary of a company's revenues, expenses, and profits/losses over a specific period of time.

Gross Profit

The financial metric representing the difference between revenue and the cost of goods sold, before deducting overheads, salaries, taxes, and interest payments.

Net Income

The net income of a company, which is the amount remaining after deducting all costs and taxes from its total revenue.

Operating Expenses

The ongoing costs incurred in the operation of a business, excluding the cost of goods sold.