On October 14, 2005, eBay acquired all of the outstanding securities of Skype Technologies S.A. (“Skype”), for a total initial consideration of approximately $2.6 billion, plus potential performance-based payments of approximately $1.3 billion (based on the euro–dollar ex- change rate at the time of the acquisition and using an income approach to estimating the value of the earnout). The initial consideration of approximately $2.6 billion was comprised of approximately $1.3 billion in cash and 32.8 million shares of eBay’s common stock. For accounting purposes, the stock portion of the initial consideration was valued at approximately $1.3 billion based on the average closing price of eBay common stock surrounding the acquisition announcement date of September 12, 2005.

Required:

A. Prepare the journal entry on eBay’s books to record the acquisition.

B. Where are the three components of the purchase price reported on the statement of cash flows? Be specific as to category and amount, and include required note disclosures in your answer.