Having Recognized a Contingent Consideration and Classified It as Equity

question 42

Multiple Choice

Having recognized a contingent consideration and classified it as equity, the subsequent treatment is:

• A)It is re-measured at fair value with changes in the income statement.
• B)It is carried at book value with no adjustments made.
• C)No remeasurement is required and the subsequent settlement is accounted for within equity.
• D)It is re-measured at fair value with changes in OCI.

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Definitions:

Factoring Receivables

A financial transaction where a business sells its accounts receivable to a third party at a discount in exchange for immediate cash.

Allowance for Doubtful Accounts

A contra asset account on a company’s balance sheet that represents the amount of receivables it does not expect to collect.

Credit Sales

Sales transactions where the customer is allowed to pay at a later date, typically generating accounts receivable.

Bad Debt Expense

Represents the expense associated with accounts receivable that a company does not expect to collect.