SafeData Corporation has the following account balances and respective fair values on June 30: Book Values Fair
Question:
SafeData Corporation has the following account balances and respective fair values on June 30:
Book Values | Fair Values | ||||||
Receivables | $ | 128,500 | $ | 128,500 | |||
Patented technology | 163,000 | 163,000 | |||||
Customer relationships | 0 | 712,000 | |||||
In-process research and development | 0 | 626,000 | |||||
Liabilities | (532,000 | ) | (532,000 | ) | |||
Common stock | (100,000 | ) | |||||
Additional paid-in capital | (300,000 | ) | |||||
Retained earnings deficit, 1/1 | 760,100 | ||||||
Revenues | (498,000 | ) | |||||
Expenses | 378,400 | ||||||
Privacy First, Inc., obtained all of the outstanding shares of SafeData on June 30 by issuing 20,000 shares of common stock having a $1 par value but a $75 fair value. Privacy First incurred $10,000 in stock issuance costs and paid $75,000 to an investment banking firm for its assistance in arranging the combination. In negotiating the final terms of the deal, Privacy First also agrees to pay $100,000 to SafeData’s former owners if it achieves certain revenue goals in the next two years. Privacy First estimates the probability adjusted present value of this contingent performance obligation at $30,000.
- a). What is the fair value of the consideration transferred in this combination?
- b). How should the stock issuance costs appear in Privacy First’s post combination financial statements?
- c). How should Privacy First account for the fee paid to the investment bank?
- d). How does the issuance of these shares affect the stockholders’ equity accounts of Privacy First, the parent?
- e). How is the fair value of the consideration transferred in the combination allocated among the assets acquired and the liabilities assumed?
- f). If Privacy First’s stock had been worth only $50 per share rather than $75, how would the consolidation of SafeData’s assets and liabilities have been affected?
Cost Accounting A Managerial Emphasis
ISBN: 978-0133138443
7th Canadian Edition
Authors: Srikant M. Datar, Madhav V. Rajan, Charles T. Horngren, Louis Beaubien, Chris Graham