BuyCo is a privately held technology developer and manufacturer in the transportation

industry. On October

31, 20X1, BuyCo entered into an agreement with SellCo to

purchase certain assets and assume certain liabilities of Sell

Co (the Transaction)

.

BuyCo intends to incorporate the processes, economic resources, and technology

acquired in the Transaction into its

existing business to

serve the transportation industry

with energy

-efficient solutions

and provide a return to its sh

areholders

. The assets and

liabilities acquired meet the definition of a business as defined i

n ASC 805-

10,

Business

Combinations

: Overall

.

Pursuant to the agreement, BuyCo will transfer to

the owners of SellCo cash of

$2 million and 10 million shares of B

uyCo common stock. BuyCo will also assume

liabilities of $4.5 million

.

The terms of the agreement

define the

l iquidity

event period

as the period beginning at

the closing of the T

ransaction and ending on December 31, 20X2.

If BuyCo undergoes an

IPO duri

ng the l

iquidity

event period, and the 10

million shares received by SellCo

in the

Transaction

have a fair value of less than $

20 million, BuyCo would be

required to issue

up to 2 million additional shares

of common stock such that the total fair value of shares

held by SellCo equal

s $20

million

(the Share Value Commitment

). BuyCo would have

sufficient authorized and unissued shares to settle the Share Value Commitment

, and

BuyCo

would be

permitted to settle in unregistered shares.

The agreement requires

the

Share Value Commitment to be settled in shares and under no conditions will BuyCo be

required to settle the Share Value Commitment in cash.

BuyCo has concluded that it is

more likely than not that the number of shares required to settle the Share Value

Commitment will be less than 2 million

.

The Transaction closed on December 31, 20X1,

at which time BuyCo legally obtained

control over the purchased assets and

assumed

liabilities of

SellCo

. The fair value of

BuyCo common stock was

$1.85 per share on Oct

ober 31, 20X1, $1.95 per share on

December 31, 20X1,

and $1.90 per share on June 30, 20X2. BuyCo hired Entity E,

a

third

-party valuation specialist

, to determine the fair value of the Share Value

Commitment. On the basis of

the current fair value of BuyCo

common stock, the

guaranteed value

of $20 million, the probability of an IPO occurring during the l

iquidity

event period, and other relevant valuation assumptions, Entity E estimated the fair value

of the Share Value Commitment to be $1.4 million, $450,000, and $1.2 million on

October 31, 20X1,

December 31, 20X1, and June 30, 20X2, respectively

.

Required:

1.

What is the total consideration transferred by BuyCo

in the Transaction

, and how

should that consideration be measured?

2.

How should the Share Value Commitment be reflected on the December 31,

20X1, balance sheet of

BuyCo

?

3.

What journal entries, if any, are required to record the change in fair value for the

Share Value Commitment between December 31, 20X1

,

and June 30, 20X2?