Question
An acquirer includes an earnout, or earnings contingency, in the acquisition price. Additional cash will be paid to the former owners of the acquired company
An acquirer includes an earnout, or earnings contingency, in the acquisition price. Additional cash will be paid to the former owners of the acquired company if the acquired company's performance exceeds certain thresholds within the next three years. The payoff, if any, would occur three years after the acquisition. Which of the following statements is true?
Select one:
A. The earnout is reported as a liability on the acquiring company's books at the date of acquisition.
B. The earnout is not reported at the date of acquisition but is reported as an adjustment to the acquisition price if and when paid.
C. If the discount rate increases, the date-of-acquisition earnout value increases.
D. The earnout usually reduces reported goodwill at the date of acquisition.
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