In May 2019, FireEye, Inc. acquired all of the outstanding shares of privately held Verodin, for $201,155,000 in cash and 11,766,453 shares of FireEye common stock with a fair value of $167,580,000 and a par value of $0.0001 /share. In addition, FireEye converted Verodin's unvested stock options to FireEye stock, and included $2,100,000 as part of acquisition consideration. Out-of-pocket acquisition-related costs were $840,000. The following table summarizes the date-of-acquisition fair values of the identifiable net assets acquired.

Net tangible assets	$21,050,000
Identifiable intangible assets:
Developed technology	53,620,000
Customer relationships	6,440,000
Trade names	2,240,000
Contract backlog	980,000
Deferred tax liability	1,240,000
Fair value of identifiable net assets	$83,090,000

Required

a. Assume the fair value of total stock options that FireEye assumed was $5,600,000 million. However, only $2,100,000 million was included as part of acquisition cost. Indicate true or false for each of the following statements relating to the criteria for determining the fair value of assumed stock options included as acquisition cost and the proper accounting for the remaining stock option fair value:

Answertruefalse 1. The $2,100,000 fair value of stock options included as part of acquisition cost represents compensation for services performed prior to the acquisition date.

Answertruefalse

2. The $3,500,000 fair value of stock options not included as part of the acquisition cost relates to services performed prior to the acquisition date and is expensed immediately.

Answertruefalse 3. The $3,500,000 fair value of stock options not included as part of the acquisition cost is recorded as prepaid compensation, to be expensed over the future service period to which they apply.

Answertruefalse 4. The $2,100,000 fair value of stock options included as part of acquisition cost is compensation for future services and is expensed in the future as services are performed.

b. What is the total acquisition cost, and how much goodwill was recognized for this acquisition?

Total Acquisition Cost: $Answer

Goodwill: $Answer

c. Prepare the journal entry to record this transaction as a merger. Assume out-of-pocket acquisition related costs were paid in cash, and that total stock option value was $5,600,000 million.

Note: Round all numbers to the nearest thousand. For example, $905 would be $1,000.

		Debit	Credit
			Answer
			Answer
			Answer
			Answer
			Answer
			Answer
			Answer
			Answer
			Answer
			Answer
			Answer
			Answer
	To record the merger

d. Assume that you are FireEye's auditor. Indicate true/false for each of the following statements regarding potential concerns related to how this acquisition was reported:

Answertruefalse

1. FireEye allocating such a large percentage ( 78%) of the acquisition cost to goodwill, which is not amortized, might indicate an understatement of amortizable intangible assets. Therefore, the auditor should evaluate whether all amortizable intangible assets have been recorded.

Answertruefalse

2. FireEye allocating such a large percentage ( 78%) of acquisition cost to goodwill, which is not amortized, might indicate an overstatement of the fair value of tangible assets acquired. Therefore, the auditor should evaluate whether tangible assets have been overstated.