Contingent Consideration: Higher Security Price to Be Attained Phota Inc. acquired 100% of Sota Inc.’s outstanding common stock by issuing 60,000 shares of its common stock ($5 par value), which had a market value of $50 per share as of the acquisition date. If the market value of Phota’s common stock is not at least $70 per share two years after the acquisition date, additional shares must be issued to Sota’s former shareholders so that the total value of the shares issued equals

$4,200,000.

Required Note: Review paragraphs 29 and 30 of FAS 141 before solving.

1. Prepare the entry to record the business combination. Explain the accounting treatment of the contingent consideration.

2. Assume that the market value of Phota’s common stock is $60 per share two years later. Pre¬

pare the entry to record the additional shares issued.