Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Research Case - Consideration or Compensation? Case facts: DirectionFind Company agrees to pay $ 2 5 million in cash to the three former owners of
Research Case Consideration or Compensation?
Case facts:
DirectionFind Company agrees to pay $ million in cash to the three former owners of TrafficFlow for all of its assets and liabilities. These three owners of TrafficFlow developed and patented a technology for realtime monitoring of traffic patterns on the nations top frequently congested highways. DirectionFind plans to combine the new technology with its existing global positioning systems and projects a resulting substantial revenue increase.
As part of the acquisition contract, DirectionFind also agrees to pay additional amounts to the former owners upon achievement of certain financial goals. DirectionFind will pay $ million to the three former owners of TrafficFlow if revenues from the combined system exceed $ million over the next four years. DirectionFind estimates this contingent payment to have a probability adjusted present value of $ million.
The three former owners have also been offered employment contracts with DirectionFind to help with system integration and performance enhancement issues. The employment contracts are silent as to service periods, have nominal salaries similar to those of equivalent employees and specify a profitsharing component over the next four years if the employees remain with the company that DirectionFind estimates to have a current fair value of $ million. The three former owners of TrafficFlow say they will stay on as employees of DirectionFind for at least four years to help achieve the desired financial goals.
Requirements:
In the form of an interoffice memorandum, you are to prepare responses to DirectionFind Companys CFO addressing the following issues.
Based upon your research using the Accounting Standards Codification ASC carefully analyze each element discussed in the case, determining if it should be classified as compensation or consideration. Include summarized citations from the ASC to support your statements. Wherever possible, you are to specifically connect the standards to the case facts.
Based upon your research using the ASC and your responses to part prepare an overall opinion as to the most appropriate treatment of the contingent payments. Support your final opinion with summarized citations from the ASC or specifically connecting the case facts to the ASC.
Additionally, all Dropbox Assignments must adhere to the following criteria:
Use this Research Case Template
You must provide solid, indepth, and well researched responses.
Use of FASB ASC website is required. You must properly cite the relevant guidance.
The Assignment must be free of grammatical and compositional errors.
You should include properly formatted bibliography and citation usage. Research Case Consideration or Compensation?
Case facts:
DirectionFind Company agrees to pay $ million in cash to the three former owners of TrafficFlow
for all of its assets and liabilities. These three owners of TrafficFlow developed and patented a
technology for realtime monitoring of traffic patterns on the nation's top frequently congested
highways. DirectionFind plans to combine the new technology with its existing global positioning
systems and projects a resulting substantial revenue increase.
As part of the acquisition contract, DirectionFind also agrees to pay additional amounts to the
former owners upon achievement of certain financial goals. DirectionFind will pay $ million to the
three former owners of TrafficFlow if revenues from the combined system exceed $ million over
the next four years. DirectionFind estimates this contingent payment to have a probability adjusted
present value of $ million.
The three former owners have also been offered employment contracts with DirectionFind to help
with system integration and performance enhancement issues. The employment contracts are silent
as to service periods, have nominal salaries similar to those of equivalent employees and specify a
profitsharing component over the next four years if the employees remain with the company that
DirectionFind estimates to have a current fair value of $ million. The three former owners of
TrafficFlow say they will stay on as employees of DirectionFind for at least four years to help
achieve the desired financial goals.
Requirements:
In the form of an interoffice memorandum, you are to prepare responses to DirectionFind
Company's CFO addressing the following issues.
Based upon your research using the Accounting Standards Codification ASC carefully
analyze each element discussed in the case, determining if it should be classified as
compensation or consideration. Include summarized citations from the ASC to support your
statements. Wherever possible, you are to specifically connect the standards to the case
facts.
Based upon
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started