ANSWERS TO ANALYZING FINANCIAL STATEMENTS EXERCISES AFS2-1 eBay acquires Skype (A) Goodwill computation Acquisition price Net tangible and intangible assets Goodwill $ 2,593 million 262 million $ 2,331 million (B) Factors used to determine in the contingent consideration is part of the exchange or no ASC paragraphs 805-10-55-24 and 25) The acquirer should consider the following if the contingent payments are made t selling shareholders. 1. Is the selling shareholder a continuing employee? If the contingent payment is the employee's employment is terminated, then the consideration might be pc compensation for services. 2. If the selling shareholder is a continuing employee and the period of required employment is longer than the contingent payment period, the contingent pay in substance, be compensation. 3. If the selling shareholder is a continuing employee and the employee's comp reasonable in comparison to other key employees, the contingent payment m additional consideration rather than compensation. 4. If the contingent payment for non-employees is less than the contingent payi continuing employees, the additional contingent payments for employees me compensation rather than additional consideration. (C) It is not clear why eBay would settle the earnout for $530.3 million when the condi to make the additional contingent payments (up to $1.3 billion) were probably not goin Under current GAAP, if the amount of the contingent payment exceeded the previously amount, the difference is reflected in earnings. Under the rules in effect for the Skype t contingent payment was simply an adjustment of goodwill. Because eBay was settling approximately a third of the total potential payments indicates that Skype was not perf Notice that eBay wrote down$1.39 billion in goodwill at the same time. One potential might have agreed to the payment is that the former CEO of Skype was stepping down contingent payment may have been incentive for him to step down. In addition, the ear prevented eBay from selling Skype. ANSWERS TO ANALYZING FINANCIAL STATEMENTS EXERCISES AFS2-1 eBay acquires Skype (A) Goodwill computation Acquisition price Net tangible and intangible assets Goodwill $ 2,593 million 262 million $ 2,331 million (B) Factors used to determine in the contingent consideration is part of the exchange or no ASC paragraphs 805-10-55-24 and 25) The acquirer should consider the following if the contingent payments are made t selling shareholders. 1. Is the selling shareholder a continuing employee? If the contingent payment is the employee's employment is terminated, then the consideration might be pc compensation for services. 2. If the selling shareholder is a continuing employee and the period of required employment is longer than the contingent payment period, the contingent pay in substance, be compensation. 3. If the selling shareholder is a continuing employee and the employee's comp reasonable in comparison to other key employees, the contingent payment m additional consideration rather than compensation. 4. If the contingent payment for non-employees is less than the contingent payi continuing employees, the additional contingent payments for employees me compensation rather than additional consideration. (C) It is not clear why eBay would settle the earnout for $530.3 million when the condi to make the additional contingent payments (up to $1.3 billion) were probably not goin Under current GAAP, if the amount of the contingent payment exceeded the previously amount, the difference is reflected in earnings. Under the rules in effect for the Skype t contingent payment was simply an adjustment of goodwill. Because eBay was settling approximately a third of the total potential payments indicates that Skype was not perf Notice that eBay wrote down$1.39 billion in goodwill at the same time. One potential might have agreed to the payment is that the former CEO of Skype was stepping down contingent payment may have been incentive for him to step down. In addition, the ear prevented eBay from selling Skype