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) | |
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 Safe Data’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.
- a. What is the fair value of the consideration transferred in this combination?
- b. How should the stock issuance costs appear in Privacy First’s postcombination financial statements?
- c. How should Privacy First account for the fee paid to the investment bank?
- d. How does the issuance of these shares affect the stockholders’ equity accounts of Privacy First, the parent?
- e. How is the fair value of the consideration transferred in the combination allocated among the assets acquired and the liabilities assumed?
- f. What is the effect of SafeData’s revenues and expenses on consolidated totals? Why?
- g. What is the effect of SafeData’s Common Stock and Additional Paid-In Capital balances on consolidated totals?
h. 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?
Want to see the full answer?
Check out a sample textbook solutionChapter 2 Solutions
ADVANCED ACCOUNTING-LL
- On 31 December 20X2, the balances of Argon Enterprises Inc.’s shareholders’ equity accounts were as follows (all are credit balances): Capital stock $ 303,000 Contributed surplus 5,230 Retained earnings 105,400 Currency translation differences 1,400 Mark-to-market adjustments on available for sale investments 26,700 Cash flow hedges 2,000 Actuarial gains and losses 1,400 $ 445,130 Argon’s statement of comprehensive income for the year ending 31 December 20X3 showed the following amounts, from “net profit for the year” through “comprehensive income”: 31 December 20X3 31 December 20X2 Net profit for the year $ 44,900 $ 68,300 Other comprehensive income (loss) net of applicable income tax: Currency translation differences (4,200 ) 2,800 Mark-to-market adjustments on available for sale investments (34,300 ) 8,000 Actuarial gains (losses) 2,100 (6,500 ) Cash…arrow_forwardThe general ledger trial balance of Central Corporation includes the following statement of financial position accounts: Inventory (including inventory expected in the ordinary course of operations to be sold beyond 12 months amounting to P70,000) P110,000 Trade receivables 120,000 Prepaid insurance 8,000 Listed investments held for trading purposes at fair value 20,000 Available for sale investments 80,000 Cash and cash equivalents 30,000 Deferred tax asset 15,000 Bank overdraft 25,000 The amount that should be reported as current assets on Central's statement of financial position is a. 288,000 b. 368,000 c. 218,000 d. 298,000arrow_forwardThe following book and fair values were available for Westmont Company as of March 1. Book value Fair value Inventory $ 630,000 $ 600,000 Land 750,000 990,000 Buildings 1,700,000 2,000,000 Customer relationships –0– 800,000 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 Arturo Company pays $4,000,000 cash and issues 20,000 shares of its $2 par value common stock (fair value of $50 per share) for all of Westmont’s common stock in a merger, after which Westmont will cease to exist as a separate entity. Stock issue costs amount to $25,000 and Arturo pays $42,000 for legal fees to complete the transaction. Required Prepare Arturo’s journal entries to record its acquisition of Westmont.arrow_forward
- The following book and fair values were available for Westmont Company as of March 1. Book Value Fair Value Inventory $ 644,750 $ 609,000 Land 779,250 1,086,750 Buildings 1,770,000 2,138,250 Customer relationships 0 842,250 Accounts payable (102,000 ) (102,000 ) Common stock (2,000,000 ) Additional paid-in capital (500,000 ) Retained earnings, 1/1 (424,500 ) Revenues (457,000 ) Expenses 289,500 Arturo Company pays $4,130,000 cash and issues 28,200 shares of its $2 par value common stock (fair value of $50 per share) for all of Westmont’s common stock in a merger, after which Westmont will cease to exist as a separate entity. Stock issue costs amount to $32,400 and Arturo pays $49,800 for legal fees to complete the transaction. Prepare Arturo’s journal entries to record its acquisition of Westmont. (If no entry is required for a transaction/event, select "No journal entry…arrow_forwardTyson Company's working capital accounts at December 31, 2018, are given below: Current Assets: Cash $100,000 Marketable Securities Accounts Receivable 50,000 $250,000 (20,000) Less Allowance for Doubtful Accounts Inventory, LIFO Prepaid Total Current Assets 230,000 300,000 8,000 $688,000 Current Liabilities: Accounts Payable Notes Payable Taxes Payable $200,000 50,000 10,000 Accrued Liabilities Total Current Liabilities 30,000 $290.000 During 2019, Tyson Company completed the following transactions: Purchased fixed assets for cash, $20,000. b. а. Exchanged Tyson Company common stock for land. Estimated value of transaction, $80,000. Payment of $40,000 on short-term notes payable. d. с. Sold marketable securities costing $20,000 for $25,000 cash. Sold Tyson Company common stock for $70,000. f. е. Wrote off an account receivable in the amount of $20,000. Declared a cash dividend in the amount of $5,000. g. h. Paid the above cash dividend. Sold inventory costing $10,000 for $15,000 cash.…arrow_forwardThe 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 Company pays $3,650,000 cash and issues 22,500 shares of its $2 par value common stock (fair value of $50 per share) for all of Westmont’s common stock in a merger, after which Westmont will cease to exist as a separate entity. Stock issue costs amount to $33,600 and Arturo pays $49,300 for legal fees to complete the transaction. Prepare Arturo’s journal entries to record its acquisition of Westmont. (If no entry is required for a transaction/event, select "No journal entry…arrow_forward
- tyson Company's working capital accounts at December 31, 2018, are given below: Current Assets: Cash $100,000 Marketable Securities 50,000 Accounts Receivable $250,000 Less Allowance for Doubtful Accounts (20,000) 230,000 Inventory, Lifo 300,000 Prepaid 8,000 Total Current Assets $688,000 Current Liabilities: Accounts Payable $200,000 Notes Payable 50,000 Taxes Payable 10,000 Accrued Liabilities 30,000 Total Current Liabilities $290,000 During 2019, DeCort Company completed the following transactions: a. Purchased fixed assets for cash, $20,000. b. Exchanged DeCort Company common stock for land. Estimated value of transaction, $80,000. c. Payment of $40,000 on short-term notes payable. d. Sold marketable securities costing $20,000 for $25,000 cash. e.…arrow_forward1. PGold Company provided the following trial balance on December 2020: Total credits amounting to P3,000,000 as follows; Bank overdraft P100,000, Accounts Payable P200,000, Accrued expenses P150,000, Ordinary share capital P1,500,000, Share premium P250,000, Retained earnings P800,000. Total debits of P3,000,000 composed the following; Accounts receivable P350,000, Inventory P600,000, Prepaid expenses P100,000, Land held for sale P1,000,000, Property, plant & equipment P950,000. Additional information: Checks amounting to 300,000 were written to vendors and recorded on December 29, 2020 resulting in a cash overdraft of P100,000. The checks were mailed on January 15, 2021. Land held for resale was sold for cash on January 31, 2021. The entity issued the financial statements on March 31, 2021. What total amount should be reported as as current assets?arrow_forward1. PGold Company provided the following trial balance on December 2020: Total credits amounting to P3,000,000 as follows; Bank overdraft P100,000, Accounts Payable P200,000, Accrued expenses P150,000, Ordinary share capital P1,500,000, Share premium P250,000, Retained earnings P800,000. Total debits of P3,000,000 composed the following; Accounts receivable P350,000, Inventory P600,000, Prepaid expenses P100,000, Land held for sale P1,000,000, Property, plant & equipment P950,000. Additional information: Checks amounting to 300,000 were written to vendors and recorded on December 29, 2020 resulting in a cash overdraft of P100,000. The checks were mailed on January 15, 2021. Land held for resale was sold for cash on January 31, 2021. The entity issued the financial statements on March 31, 2021. What is the total shareholders equity?arrow_forward
- 1. PGold Company provided the following trial balance on December 2020: Total credits amounting to P3,000,000 as follows; Bank overdraft P100,000, Accounts Payable P200,000, Accrued expenses P150,000, Ordinary share capital P1,500,000, Share premium P250,000, Retained earnings P800,000. Total debits of P3,000,000 composed the following; Accounts receivable P350,000, Inventory P600,000, Prepaid expenses P100,000, Land held for sale P1,000,000, Property, plant & equipment P950,000. Additional information: Checks amounting to 300,000 were written to vendors and recorded on December 29, 2020 resulting in a cash overdraft of P100,000. The checks were mailed on January 15, 2021. Land held for resale was sold for cash on January 31, 2021. The entity issued the financial statements on March 31, 2021. What total amount should be reported as as current liabilities?arrow_forwardData pertaining to the current position of Lucroy Industries Inc. follow:Cash $ 800,000Marketable securities 550,000Accounts and notes receivable (net) 850,000Inventories 700,000Prepaid expenses 300,000Accounts payable 1,200,000Notes payable (short-term) 700,000Accrued expenses 100,000Instructions1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round ratios in parts b through j to one decimal place.2. List the following captions on a sheet of paper:Transaction Working Capital Current Ratio Quick RatioCompute the working capital, the current ratio, and the quick ratio after each of the…arrow_forwardThe following are the details from the income statements of division S and division C for the year ending March 2014. Figures in TZS "000" Sales revenue 100,000 64,000 6,000 120,000 75,000 10,000 150,000 Operating cost Interest cost Capital invested 122,000 Capital invested include debt WACC 10% 12.5% Rate of corporate tax 40% 44% Required: Calculate NOPAT as adjusted for EVA and also calculate EVA for both the divisions. Which Division performed better?arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education