Major Corporation Issues 1,000,000 Common Shares for All of the Outstanding

question 36

Essay

Major Corporation issues 1,000,000 common shares for all of the outstanding common shares of Minor Corporation on August 1, Year 1. The shares issued have a fair market value of $40. In addition, the merger agreement provides that if the market price of Major's shares is below $60 two years from the date of the merger, Major will issue additional shares to the former shareholders of Minor Corporation in an amount that will compensate them for their loss of value. On August 1, Year 3, the stock market price of major's shares is $55. In accordance with their agreement, Major Corporation issues an additional number of shares.
Required:
a) Prepare the journal entry to record the issuance of the shares.
b) Calculate the number of additional shares that Major Corporation will have to issue to the former shareholders of Minor Corporation.
c) Prepare the journal entry to record the transaction under IFRS 3 Business Combinations.
d) Are there any alternatives for recording the additional share issuance?
e) What would be the required disclosure for this series of events?

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Definitions:

Self-Respect

The regard for one's own well-being and dignity, often seen as a critical aspect of mental health and personal development.

Institutionalized Patients

Individuals who live in a healthcare or rehabilitative institution for extended care or treatment.

Token Economy

A behavioral intervention system where tokens are given as rewards for desired behaviors, which can later be exchanged for privileges or items.

Reinforcer

In psychology, any event that strengthens or increases the likelihood of a behavior by providing a consequence an individual finds rewarding.