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:

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