Question
Peach Company acquired all of Star Inc's outstanding shares on January 1. Peach said $300,000 and issued $200,000 in long term liabilities and paid $40,000
Peach Company acquired all of Star Inc's outstanding shares on January 1. Peach said $300,000 and issued $200,000 in long term liabilities and paid $40,000 in legal fees. Peach also agreed to pay $75,000 to the former owners of Star contingent on meeting certain revenue goals during the following year. Peach estimated the Present value of its probability adjusted expected payment for the contingency or contingent obligation at $43,000
Precombination book values for Star, Inc are as follows:
Current Assets $85,000
Equipment $90,000
Buildings $175,000
Goodwill $30,000
Total $380,000
Current Liabilities (50,000)
Common Stock (180,000)
Retained Earnings (115,000)
Revenues (135,000)
Expenses 100,000
Total $380,000
Peach's appraisal of Star found two balance sheet accounts that differed from fair value. Equipment was undervalued by $15,000 and Building by $5,000. Peach noted that Star has unrecorded client contract worth $60,000 and research and development activity in processionals with an appraised fair value of $90,000.
a. What is the total consideration given by Peach?
b. What values for each of the acquired assets and liabilities will be used in the consolidation?
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