Question

SafeData Corporation has the following account balances and respective fair values on June 30: Book Values...

SafeData Corporation has the following account balances and respective fair values on June 30: Book Values Fair Values Receivables $ 107,000 $ 107,000 Patented technology 181,000 181,000 Customer relationships 0 642,000 In-process research and development 0 474,000 Liabilities (488,000 ) (488,000 ) Common stock (100,000 ) Additional paid-in capital (300,000 ) Retained earnings deficit, 1/1 712,800 Revenues (464,000 ) Expenses 351,200 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 $60 fair value. Privacy First incurred $10,000 in stock issuance costs and paid $60,000 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 $85,000 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 $25,500.

How does the issuance of these shares affect the stockholders’ equity accounts of Privacy First, the parent?

How is the fair value of the consideration transferred in the combination allocated among the assets acquired and the liabilities assumed?

If Privacy First’s stock had been worth only $35 per share rather than $60, how would the consolidation of SafeData’s assets and liabilities have been affected?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The fair value of the consideration transferred is determined as below:

Fair Value of the Stock Issued (20,000*60) 1,200,000
Add Contingent Performance Obligation 25,500
Fair Value of Consideration Transferred $1,225,500

The revised values are determined as below:

Fair Value of Consideration Transferred (20,000*35 + 25,500)725,500

Receivables107,000

Patented Technology181,000

Customer Relationships642,00

0In-Process Research and Development474,000

Liabilities-488,000916,000

Gain on Bargain Purchase$190,500

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Victory Corporation had the following selected account balances and fair values at December 31, 2016, when...
Victory Corporation had the following selected account balances and fair values at December 31, 2016, when it was acquired by Danner Company. Book Values Fair Values Receivables $    30,000.00 $ 30,000.00 Customer Relationships $    15,000.00 $100,000.00 Patents $                  -   $250,000.00 In-process R&D $                  -   $100,000.00 Liabilities $    90,000.00 $ 90,000.00 Common Stock $    40,000.00 Additional paid-in capital $    90,000.00 Danner Company acquired all of the common shares of Victory Corporation by issuing 6,000 shares of its own common stock valued...
On May 1, Soriano Co. reported the following account balances along with their estimated fair values:...
On May 1, Soriano Co. reported the following account balances along with their estimated fair values: Carrying Amount Fair Value Receivables $ 92,500 $ 92,500 Inventory 84,000 84,000 Copyrights 172,500 537,500 Patented technology 906,000 739,000 Total assets $ 1,255,000 $ 1,453,000 Current liabilities $ 205,000 $ 205,000 Long-term liabilities 713,000 694,000 Common stock 100,000 Retained earnings 237,000 Total liabilities and equities $ 1,255,000 On that day, Zambrano paid cash to acquire all of the assets and liabilities of Soriano, which...
The following book and fair values were available for Westmont Company as of March 1. Book...
The following book and fair values were available for Westmont Company as of March 1. Book Value Fair Value   Inventory $ 350,000 $ 298,250   Land 820,500 1,085,250   Buildings 2,040,000 2,361,000   Customer relationships 0 871,500   Accounts payable (105,000 ) (105,000 )   Common stock (2,000,000 )   Additional paid-in capital (500,000 )   Retained earnings 1/1 (425,500 )   Revenues (496,000 )   Expenses 316,000 Arturo Company pays $3,900,000 cash and issues 21,300 shares of its $2 par value common stock (fair value of $50 per...
On June 30, 200X Carl Corporation purchased Lin Company by issuing 50,000 shares of stock. Stock...
On June 30, 200X Carl Corporation purchased Lin Company by issuing 50,000 shares of stock. Stock has a market value of $15.00 per share. This acquisition is to be recorded as a statutory merger through asset acquisition. In this type of business combination Carl company acquires all the assets and liabilities of Lin Company. Lin Company is dissolved and goes out of business.   Prepare the entries the purchase and combination on June 30, 200X. Following information is shown prior to...
1.  The following book and fair values were available for Honeycutt Industries: Account Book Value Fair Value...
1.  The following book and fair values were available for Honeycutt Industries: Account Book Value Fair Value Inventory $630,000 500,000 Land $750,000 790,000 Buildings $1,700,000 1,900,000 Customer Relationships 0 500,000 Accounts Payable ($80,000) (80,000) Common Stock ($2,000,000 Additional Paid in Capital ($500,000) Retained Earnings, 1/1 ($360,000) Revenues ($420,000) Expenses $280,000 Flagg Inc. pays $3,000,000 cash and issues 10,000 shares of its $3 par value common stock (fair value of $50 per share) for all of Honeycutt’s common stock in a merger,...
The following book and fair values were available for Westmont Company as of March 1. Book...
The following book and fair values were available for Westmont Company as of March 1. Book Value Fair Value Inventory $ 260,500 $ 229,750 Land 759,000 1,069,500 Buildings 2,170,000 2,535,250 Customer relationships 0 825,000 Accounts payable (119,000 ) (119,000 ) Common stock (2,000,000 ) Additional paid-in capital (500,000 ) Retained earnings 1/1 (413,000 ) Revenues (480,000 ) Expenses 322,500 Arturo pays cash of $4,413,500 to acquire Westmont. No stock is issued and Arturo pays $47,100 for legal fees to complete...
The following book and fair values were available for Westmont Company as of March 1. Book...
The following book and fair values were available for Westmont Company as of March 1. Book Value Fair Value Inventory $ 200,500 $ 167,000 Land 817,500 1,097,250 Buildings 2,175,000 2,506,500 Customer relationships 0 860,250 Accounts payable (87,000 ) (87,000 ) Common stock (2,000,000 ) Additional paid-in capital (500,000 ) Retained earnings 1/1 (431,500 ) Revenues (478,500 ) Expenses 304,000 Arturo pays cash of $4,424,000 to acquire Westmont. No stock is issued and Arturo pays $49,300 for legal fees to complete...
Hepner Corporation has the following stockholders’ equity accounts: Preferred stock (7% cumulative dividend) $ 580,000 Common...
Hepner Corporation has the following stockholders’ equity accounts: Preferred stock (7% cumulative dividend) $ 580,000 Common stock 830,000 Additional paid-in capital 380,000 Retained earnings 1,030,000 The preferred stock is participating. Wasatch Corporation buys 70 percent of this common stock for $1,680,000 and 60 percent of the preferred stock for $660,000. The acquisition-date fair value of the noncontrolling interest in the common shares was $720,000 and was $440,000 for the preferred shares. All of the subsidiary’s assets and liabilities are viewed...
Hepner Corporation has the following stockholders’ equity accounts: Preferred stock (5% cumulative dividend) $ 680,000 Common...
Hepner Corporation has the following stockholders’ equity accounts: Preferred stock (5% cumulative dividend) $ 680,000 Common stock 930,000 Additional paid-in capital 480,000 Retained earnings 1,130,000 The preferred stock is participating. Wasatch Corporation buys 70 percent of this common stock for $1,750,000 and 60 percent of the preferred stock for $810,000. The acquisition-date fair value of the noncontrolling interest in the common shares was $750,000 and was $540,000 for the preferred shares. All of the subsidiary’s assets and liabilities are viewed...
Hepner Corporation has the following stockholders’ equity accounts: Preferred stock (8% cumulative dividend) $ 660,000 Common...
Hepner Corporation has the following stockholders’ equity accounts: Preferred stock (8% cumulative dividend) $ 660,000 Common stock 910,000 Additional paid-in capital 460,000 Retained earnings 1,110,000 The preferred stock is participating. Wasatch Corporation buys 70 percent of this common stock for $1,820,000 and 60 percent of the preferred stock for $810,000. The acquisition-date fair value of the noncontrolling interest in the common shares was $780,000 and was $540,000 for the preferred shares. All of the subsidiary’s assets and liabilities are viewed...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT