A company acquires another company for $3,000,000 in cash, $10,000,000 in stock, and the following contingent consideration: $1,000,000 after year 1, $1,000,000 after year 2, and $500,000 after year 3, if earnings of the subsidiary exceed $10,000,000 in each of the three years. The fair value of the contingent-based consideration portion is $2,100,000. What is the total consideration transferred for this business combination?
In a business combination, consideration transferred is valued at fair market value. When contingent consideration is transferred by the acquirer to the acquiree, it is also valued at fair market value. The total consideration transferred for the business combination = $3,000,000 (cash) + $10,000,000 (stock) + $2,100,000 (fair value of contingent-based consideration) = $15,100,000.