27 Consolidation as of the date of acquisition (12 points)

This question asks you to explain how certain matters are treated when a company uses the acquisition method of accounting, which is what FASB requires.

A. What items are included as part of the total consideration transferred in a business combination? (3 points)

B. How is contingent consideration treated? In your answer, explain how the contingent consideration is treated on the date of acquisition AND how the company accounts for the contingent consideration in some future period, when the amount to be paid becomes known. (4 points)

C. Large buys 100% of Small on January 1, Year 1, for $30 million in cash. Large debited investment in Small and credited cash. At that date, Smalls books show $4 million in common stock, and $18 million in retained earnings. All its assets and liabilities have book values equal to fair values, except for land that has fair value that is $6 million more than book value. Give the consolidation entry or entries that would be needed as of the date of consolidation (5 points)