Interpreting Acquisition Footnote with In-Process Research andDevelopmentOn October 3, 2017, Gilead Sciences, Inc. (Gilead)...Interpreting...

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Accounting

Interpreting Acquisition Footnote with In-Process Research andDevelopment
On October 3, 2017, Gilead Sciences, Inc. (Gilead) acquired 100%of the outstanding common stock
of Kite Pharma, Inc. (Kite). According to Gilead’s December 31,2017 Securities and Exchange Com-
mission Form 10-K, “[t]he acquisition of Kite was accounted foras a business combination using the
acquisition method of accounting.” The following excerpt is fromNote 5 (i.e., Acquisitions) of Gilead’s
2017 10-K:
The following table summarizes the preliminary acquisition datefair values of assets acquired and
liabilities assumed, and the consideration transferred (inmillions):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 652
Identifiable intangible assets
Indefinite-lived intangible assets—IPR&D . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 8,950
Outlicense acquired . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Deferred income taxes . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .(1,606)
Other assets acquired (liabilities assumed), net. . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 81
Total identifiable net assets. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 8,168
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2,987
Total consideration transferred . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . $11,155
a. What did Gilead need to demonstrate for the Kite acquisitionto qualify as a business
combination? (In answering this question, ignore the informationin part d of this problem.)
b. Given the individual identifiable net assets acquired,describe why business combination
accounting might seem unusual for the Kite acquisition. (Inanswering this question, ignore the
information in part d of this problem.)
c. For this question only, assume the Kite acquisition qualifiedas an asset acquisition that is not a
business combination. How would the accounting for theacquisition of Kite’s net assets differ?
d. According to Gilead’s 2017 10-K, in October 2017, after theacquisition date of Kite, the “FDA
approv[ed] Yescarta for the treatment of adult patients withrelapsed or refractory DLBCL after
two or more lines of systemic therapy.” (This technology wastechnically considered unproven
and presented as part of in-process research and development atthe balance acquisition date.)
The footnote states that the fair value of the technology forthis proven Yescarta therapy is $6,200
million. If this technology was proven and patented, how willthe above-presented information in
the acquisition footnote change in the December 31, 2017financial statements of Gilead?

THIS IS ALL THE INFORMATION THE BOOK GIVES DONT ASK FOR MORE

Answer & Explanation Solved by verified expert

4.4 Ratings (578 Votes)

aTo qualify as a business combination Gilead should see over two elements the aquirer obtains cotrol of an acquired the aquiree is a business b Because of business combination See Answer

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In: AccountingInterpreting Acquisition Footnote with In-Process Research andDevelopmentOn October 3, 2017, Gilead Sciences, Inc. (Gilead)...Interpreting Acquisition Footnote with In-Process Research andDevelopmentOn October 3, 2017, Gilead Sciences, Inc. (Gilead) acquired 100%of the outstanding common stockof Kite Pharma, Inc. (Kite). According to Gilead’s December 31,2017 Securities and Exchange Com-mission Form 10-K, “[t]he acquisition of Kite was accounted foras a business combination using theacquisition method of accounting.” The following excerpt is fromNote 5 (i.e., Acquisitions) of Gilead’s2017 10-K:The following table summarizes the preliminary acquisition datefair values of assets acquired andliabilities assumed, and the consideration transferred (inmillions):Cash and cash equivalents . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 652Identifiable intangible assetsIndefinite-lived intangible assets—IPR&D . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 8,950Outlicense acquired . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 91Deferred income taxes . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . .(1,606)Other assets acquired (liabilities assumed), net. . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 81Total identifiable net assets. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 8,168Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2,987Total consideration transferred . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . $11,155a. What did Gilead need to demonstrate for the Kite acquisitionto qualify as a businesscombination? (In answering this question, ignore the informationin part d of this problem.)b. Given the individual identifiable net assets acquired,describe why business combinationaccounting might seem unusual for the Kite acquisition. (Inanswering this question, ignore theinformation in part d of this problem.)c. For this question only, assume the Kite acquisition qualifiedas an asset acquisition that is not abusiness combination. How would the accounting for theacquisition of Kite’s net assets differ?d. According to Gilead’s 2017 10-K, in October 2017, after theacquisition date of Kite, the “FDAapprov[ed] Yescarta for the treatment of adult patients withrelapsed or refractory DLBCL aftertwo or more lines of systemic therapy.” (This technology wastechnically considered unprovenand presented as part of in-process research and development atthe balance acquisition date.)The footnote states that the fair value of the technology forthis proven Yescarta therapy is $6,200million. If this technology was proven and patented, how willthe above-presented information inthe acquisition footnote change in the December 31, 2017financial statements of Gilead?THIS IS ALL THE INFORMATION THE BOOK GIVES DONT ASK FOR MORE