SafeData Corporation has the following account balances and respective fair values on June 30: Book Values Fair Values Receivables $ 86,000 $ 86,000 Patented 121,000 121,000 technology Customer relationships In-process research and development 0 о 688,000 528,000 Liabilities (476,000) (476,000) Common stock (100,000) Additional paid- (300,000) in capital Retained earnings deficit, 775,800 1/1 Revenues Expenses (434,000) 327,200 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 $65 fair value. Privacy First incurred $10,000 in stock issuance costs and paid $65,000 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 $90,000 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 $27,000. What is the fair value of the consideration transferred in this combination? How should the stock issuance costs appear in Privacy First's postcombination financial statements? How should Privacy First account for the fee paid to the investment bank? 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 $40 per share rather than $65, how would the consolidation of SafeData's assets and liabilities have been affected?
SafeData Corporation has the following account balances and respective fair values on June 30: Book Values Fair Values Receivables $ 86,000 $ 86,000 Patented 121,000 121,000 technology Customer relationships In-process research and development 0 о 688,000 528,000 Liabilities (476,000) (476,000) Common stock (100,000) Additional paid- (300,000) in capital Retained earnings deficit, 775,800 1/1 Revenues Expenses (434,000) 327,200 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 $65 fair value. Privacy First incurred $10,000 in stock issuance costs and paid $65,000 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 $90,000 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 $27,000. What is the fair value of the consideration transferred in this combination? How should the stock issuance costs appear in Privacy First's postcombination financial statements? How should Privacy First account for the fee paid to the investment bank? 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 $40 per share rather than $65, how would the consolidation of SafeData's assets and liabilities have been affected?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:SafeData Corporation has the following account balances and respective fair values on June 30:
Book
Values
Fair
Values
Receivables
$
86,000
$ 86,000
Patented
121,000
121,000
technology
Customer
relationships
In-process
research and
development
0
о
688,000
528,000
Liabilities
(476,000)
(476,000)
Common stock
(100,000)
Additional paid-
(300,000)
in capital
Retained
earnings deficit,
775,800
1/1
Revenues
Expenses
(434,000)
327,200
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 $65 fair value. Privacy First incurred $10,000 in stock issuance costs and paid $65,000 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 $90,000 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 $27,000.
What is the fair value of the consideration transferred in this combination?
How should the stock issuance costs appear in Privacy First's postcombination financial statements?
How should Privacy First account for the fee paid to the investment bank?
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 $40 per share rather than $65, how would the consolidation of SafeData's assets and
liabilities have been affected?
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