SafeData Corporation has the following account balances andrespective fair values on June 30:
| Book Values | | Fair Values |
| Receivables | $ | 108,000 | | | $ | 108,000 | |
| Patented technology | | 123,000 | | | | 123,000 | |
| Customer relationships | | 0 | | | | 840,000 | |
| In-process research and development | | 0 | | | | 524,000 | |
| Liabilities | | (596,000 | ) | | | (596,000 | ) |
| Common stock | | (100,000 | ) | | | | |
| Additional paid-in capital | | (300,000 | ) | | | | |
| Retained earnings deficit, 1/1 | | 847,400 | | | | | |
| Revenues | | (312,000 | ) | | | | |
| Expenses | | 229,600 | | | | | |
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Privacy First, Inc., obtained all of the outstanding shares ofSafeData on June 30 by issuing 20,000 shares of common stock havinga $1 par value but a $70 fair value. Privacy First incurred $10,000in stock issuance costs and paid $70,000 to an investment bankingfirm for its assistance in arranging the combination. Innegotiating the final terms of the deal, Privacy First also agreesto pay $95,000 to SafeData’s former owners if it achieves certainrevenue goals in the next two years. Privacy First estimates theprobability adjusted present value of this contingent performanceobligation at $28,500.
- What is the fair value of the consideration transferred in thiscombination?
- How should the stock issuance costs appear in Privacy First’spostcombination financial statements?
- How should Privacy First account for the fee paid to theinvestment 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 thecombination allocated among the assets acquired and the liabilitiesassumed?
- If Privacy First’s stock had been worth only $45 per sharerather than $70, how would the consolidation of SafeData’s assetsand liabilities have been affected?
