Question
SafeData Corporation has the following account balances and respective fair values on June 30: (Look at attachment for table) Privacy First, Inc., obtained all of
SafeData Corporation has the following account balances and respective fair values on June 30:
(Look at attachment for table)
Privacy First, Inc., obtained all of the outstanding shares of SafeData on June 30 by issuing 20,000 shares of common stock having a $1 par value but a $75 fair value. Privacy First incurred $10,000 in stock issuance costs and paid $75,000 to an investment banking firm for its assistance in arranging the combination. In negotiating the final terms of the deal, Privacy First also agrees to pay $100,000 to SafeData's former owners if it achieves certain revenue goals in the next two years. Privacy First estimates the probability adjusted present value of this contingent performance obligation at $30,000.
a. | What is the fair value of the consideration transferred in this combination?
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b. | How should the stock issuance costs appear in Privacy First's postcombination financial statements?
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c. | How should Privacy First account for the fee paid to the investment bank?
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d. | How does the issuance of these shares affect the stockholders' equity accounts of Privacy First, the parent?
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e. | How is the fair value of the consideration transferred in the combination allocated among the assets acquired and the liabilities assumed?
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f. | What is the effect of SafeData's revenues and expenses on consolidated totals? Why?
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g. | What is the effect of SafeData's Common Stock and Additional Paid-In Capital balances on consolidated totals?
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h. | If Privacy First's stock had been worth only $50 per share rather than $75, how would the consolidation of SafeData's assets and liabilities have been affected?
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