SafeData Corporation has the following account balances and respective fair values on June 30:   Book Values Fair Values Receivables $ 80,000 $ 80,000 Patented technology 100,000 700,000 Customer relationships –0– 500,000 In-process research and development –0– 300,000 Liabilities (400,000) (400,000) Common stock (100,000)   Additional paid-in capital (300,000)   Retained earnings deficit, 1/1 700,000   Revenues (300,000)   Expenses 220,000   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. 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? What is the effect of SafeData’s revenues and expenses on consolidated totals? Why? What is the effect of SafeData’s Common Stock and Additional Paid-In Capital balances on consolidated totals? 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?

Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter14: Statement Of Cash Flows
Section: Chapter Questions
Problem 32BEB: During 20X2, Evans Company had the following transactions: a. Cash dividends of 6,000 were paid. b....
icon
Related questions
Question

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

 

Book Values

Fair Values

Receivables

$ 80,000

$ 80,000

Patented technology

100,000

700,000

Customer relationships

–0–

500,000

In-process research and development

–0–

300,000

Liabilities

(400,000)

(400,000)

Common stock

(100,000)

 

Additional paid-in capital

(300,000)

 

Retained earnings deficit, 1/1

700,000

 

Revenues

(300,000)

 

Expenses

220,000

 

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.

  1. What is the fair value of the consideration transferred in this combination?

  2. How should the stock issuance costs appear in Privacy First’s postcombination financial statements?

  3. How should Privacy First account for the fee paid to the investment bank?

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

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

  6. What is the effect of SafeData’s revenues and expenses on consolidated totals? Why?

  7. What is the effect of SafeData’s Common Stock and Additional Paid-In Capital balances on consolidated totals?

  8. 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?

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 10 steps

Blurred answer
Knowledge Booster
Consolidations
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Accounting: The Cornerstone of Busines…
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Corporate Fin Focused Approach
Corporate Fin Focused Approach
Finance
ISBN:
9781285660516
Author:
EHRHARDT
Publisher:
Cengage
Income Tax Fundamentals 2020
Income Tax Fundamentals 2020
Accounting
ISBN:
9780357391129
Author:
WHITTENBURG
Publisher:
Cengage
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Financial Accounting
Financial Accounting
Accounting
ISBN:
9781305088436
Author:
Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:
Cengage Learning