Sandstone Corporation has the following account balances and respective fair values on June 30: Items Book Values Fair Values Receivables $ 83,500 $ 83,500 Patented technology 149,000 149,000 Computer software 0 748,000 In-process research and development 0 590,000 Liabilities (576,000) (576,000) Common stock (100,000) 0 Additional paid-in capital (300,000) 0 Retained earnings deficit, 1/1 833,900 0 Revenues (352,000) 0 Expenses 261,600 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 $65 fair value. Patriot 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, Patriot also agrees to pay $90,000 to Sandstone’s former owners if it achieves certain revenue goals in the next two years. Patriot estimates the probability adjusted present value of this contingent performance obligation at $27,000. How should Patriot account for the fee paid to the investment bank? How does the issuance of these shares affect the stockholders’ equity accounts of Patriot, the parent? How is the fair value of the consideration transferred in the combination allocated among the assets acquired and the liabilities assumed? If Patriot’s stock had been worth only $40 per share rather than $65, how would the consolidation of Sandstone’s assets and liabilities have been affected?
Sandstone Corporation has the following account balances and respective fair values on June 30:
| Items | Book Values | Fair Values |
|---|---|---|
| Receivables | $ 83,500 | $ 83,500 |
| Patented technology | 149,000 | 149,000 |
| Computer software | 0 | 748,000 |
| In-process research and development | 0 | 590,000 |
| Liabilities | (576,000) | (576,000) |
| Common stock | (100,000) | 0 |
| Additional paid-in capital | (300,000) | 0 |
| Retained earnings deficit, 1/1 | 833,900 | 0 |
| Revenues | (352,000) | 0 |
| Expenses | 261,600 | 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 $65 fair value. Patriot 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, Patriot also agrees to pay $90,000 to Sandstone’s former owners if it achieves certain revenue goals in the next two years. Patriot estimates the probability adjusted present value of this contingent performance obligation at $27,000.
How should Patriot account for the fee paid to the investment bank?
How does the issuance of these shares affect the stockholders’ equity accounts of Patriot, the parent?
How is the fair value of the consideration transferred in the combination allocated among the assets acquired and the liabilities assumed?
If Patriot’s stock had been worth only $40 per share rather than $65, how would the consolidation of Sandstone’s assets and liabilities have been affected?
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