Sandstone Corporation has the following account balances and respective fair values on June 30: Book Values $ 81,500 Fair Values $ 81,500 196,000 676,000 196,000 532,000 (462,000) Items Receivables Patented technology Computer software In-process research and development Liabilities Common stock Additional paid-in capital Retained earnings deficit, 1/1 Revenues Expenses 0 0 (462,000) (100,000) (300,000) 671,700 (336,000) 248,800 0 0 0 0 0 Patriot, Incorporated, obtained all of the outstanding shares of Sandstone on June 30 by issuing 20,000 shares of common stock having a $1 par value but a $70 fair value. Patriot incurred $10,000 in stock issuance costs and paid $70,000 to an investment bank firm for its assistance in arranging the combination. In negotiating the final terms of the deal, Patriot also agrees to pay $95,000 to Sandstone's former owners if it achieves certain revenue goals in the next two years. Patriot estimates the probability adjusted pres value of this contingent performance obligation at $28,500. Required: a. What is the fair value of the consideration transferred in this combination? b. How should the stock issuance costs appear in Patriot's postcombination financial statements? c. How should Patriot account for the fee paid to the investment bank? d. How does the issuance of these shares affect the stockholders' equity accounts of Patriot, the parent? e. How is the fair value of the consideration transferred in the combination allocated among the assets acquired and the liabilities assumed? h. If Patriot's stock had been worth only $45 per share rather than $70, how would the consolidation of Sandstone's assets and liabilities have been affected?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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A-5

Sandstone Corporation has the following account balances and respective fair values on June 30:
Fair Values
$ 81,500
196,000
676,000
532,000
(462,000)
Receivables
Patented technology
Computer software
Items
In-process research and development
Liabilities
Common stock
Additional paid-in capital
Retained earnings deficit, 1/1
Revenues
Expenses
Book Values
$ 81,500
196,000
0
0
(462,000)
(100,000)
(300,000)
671,700
(336,000)
248,800
Patriot, Incorporated, obtained all of the outstanding shares of Sandstone on June 30 by issuing 20,000 shares of common stock
having a $1 par value but a $70 fair value. Patriot incurred $10,000 in stock issuance costs and paid $70,000 to an investment banki
firm for its assistance in arranging the combination. In negotiating the final terms of the deal, Patriot also agrees to pay $95,000 to
Sandstone's former owners if it achieves certain revenue goals in the next two years. Patriot estimates the probability adjusted pres
value of this contingent performance obligation at $28,500.
Required A Required B
Required:
a. What is the fair value of the consideration transferred in this combination?
b. How should the stock issuance costs appear in Patriot's postcombination financial statements?
c. How should Patriot account for the fee paid to the investment bank?
Required C
d. How does the issuance of these shares affect the stockholders' equity accounts of Patriot, the parent?
e. How is the fair value of the consideration transferred in the combination allocated among the assets acquired and the liabilities
assumed?
h. If Patriot's stock had been worth only $45 per share rather than $70, how would the consolidation of Sandstone's assets and
liabilities have been affected?
Complete this question by entering your answers in the tabs below.
0
0
0
0
Answer is not complete.
Required D Required E
The value of Sandstone's assets and liabilities would be recorded at
a gain on bargain purchase
If Patriot's stock had been worth only $45 per share rather than $70, how would the consolidation of Sandstone's assets and
liabilities have been affected?
of $ 820,000 would be recorded.
Required H
fair value
and
Transcribed Image Text:Sandstone Corporation has the following account balances and respective fair values on June 30: Fair Values $ 81,500 196,000 676,000 532,000 (462,000) Receivables Patented technology Computer software Items In-process research and development Liabilities Common stock Additional paid-in capital Retained earnings deficit, 1/1 Revenues Expenses Book Values $ 81,500 196,000 0 0 (462,000) (100,000) (300,000) 671,700 (336,000) 248,800 Patriot, Incorporated, obtained all of the outstanding shares of Sandstone on June 30 by issuing 20,000 shares of common stock having a $1 par value but a $70 fair value. Patriot incurred $10,000 in stock issuance costs and paid $70,000 to an investment banki firm for its assistance in arranging the combination. In negotiating the final terms of the deal, Patriot also agrees to pay $95,000 to Sandstone's former owners if it achieves certain revenue goals in the next two years. Patriot estimates the probability adjusted pres value of this contingent performance obligation at $28,500. Required A Required B Required: a. What is the fair value of the consideration transferred in this combination? b. How should the stock issuance costs appear in Patriot's postcombination financial statements? c. How should Patriot account for the fee paid to the investment bank? Required C d. How does the issuance of these shares affect the stockholders' equity accounts of Patriot, the parent? e. How is the fair value of the consideration transferred in the combination allocated among the assets acquired and the liabilities assumed? h. If Patriot's stock had been worth only $45 per share rather than $70, how would the consolidation of Sandstone's assets and liabilities have been affected? Complete this question by entering your answers in the tabs below. 0 0 0 0 Answer is not complete. Required D Required E The value of Sandstone's assets and liabilities would be recorded at a gain on bargain purchase If Patriot's stock had been worth only $45 per share rather than $70, how would the consolidation of Sandstone's assets and liabilities have been affected? of $ 820,000 would be recorded. Required H fair value and
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