Earnings Contingency, In-Process R&D, Bargain Purchase

On January 2, 2012, Fiser, Inc. acquired Vixen Pharmaceuticals for $1.5 billion cash, in a merger. Vixen had two promising products for treating common infections under review by the U.S. Food and Drug Administration. The balance sheets of Fiser and Vixen, immediately prior to the acquisition, are below. Fair value information appears for Vixen's reported assets and liabilities.

	Fiser, Inc.	Vixen Pharmaceuticals
(in thousands)	Book Value	Book Value	Fair Value
Current assets	$6,000,000	$240,000	$240,000
Property, plant and equipment	72,000,000	12,000,000	6,000,000
Patents	12,000,000	600,000	3,600,000
Total assets	$90,000,000	$12,840,000	$9,840,000
Liabilities	$42,000,000	$9,420,000	$9,420,000
Capital stock	30,000,000	6,000,000
Retained earnings	18,000,000	(2,580,000)
Total liabilities and equity	$90,000,000	$12,840,000

$1.2 billion of the purchase price was allocated to previously unreported in-process research and development attributed to Vixen's products under development. The purchase price was low due to Vixen's poor performance in previous yearsVixen reported a retained earnings deficit of $2.58 billion as of the date of acquisition. To close the deal, Fiser agreed to pay the former owners of Vixen $2.40 for every dollar of total revenue above $60 million reported on sales of Vixen's products over the next two years. This payment, if made at all, would occur at December 31, 2013. Fiser expects that there is only a 12 percent chance the payment will be made, as follows:

Please help with the Red X's and please EXPLAIN how you got the answer. I'm struggling to see how this is a gain because the purchase price 1,500,000+4,025 (in thousands) = consideration given but then you add up assets = 9,840,000 and subtract liabilities 9,420,000 = 420,000 so then the 1,504025 consideration given is more than the FMV so I would think it would be goodwill???

Total expected revenue on Vixen's products, 2012 - 2013 Probability Below $60 million 0.88 $72 million 0.10 $96 million 0.02 (a) Calculate the present value of the earnout agreement, using a 7 percent discount rate. (Round your answer to nearest thousand dollars.) $4,025 (in thousands) (b) This acquisition is a bargain purchase. Calculate the gain on acquisition reported by Fiser. (in thousands) 1,084,025 (c) Prepare the entry Fiser made to record the acquisition(in thousands). General Journal Description Debit Credit Current assets 240,000 0 Property, plant and equipment 6,000,000 0 Patents 3,600,000 0 v In-process R&D 1,200,000 0 Liabilities 0 9,424,025 Cash 0 1,500,000 Gain on acquisition 0 1,084,025 (d) Prepare Fiser's post-combination balance sheet (in thousands). Fiser, Inc. Balance Sheet January 3, 2012 (in thousands) 4,740,000 Liabilities Current assets 51,424,025 Property, plant and equipment 78,000,000 Capital stock 30,000,000 Retained earnings Patents 15,600,000 18,000,000x In-process research & development 1,200,000 Total liabilities and equity $ Total assets 99,540,000 0 x