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Mitchell Boehm

Chapter 2
Exercises 6-10
9/11/2014
8 a Signed customer contracts 1,000,000 $
Well publicized internet domain name 150,000
Office leases 100,000
Registered company name and trademark 60,000
Proprietary database of industry data 50,000
b 1,360,000
Price paid $2,400,000
FV of net assets: 400,000
Identifiable intangibles 1,360,000
1,760,000
Goodwill $640,000
9 Price paid $1,800,000
FV of net assets:
Current assets 850,000
Noncurrent assets 1,600,000
Estimated liability (280,000)
Other liabilities (500,000) 1,670,000
Goodwill $130,000
Current assets 850,000
Noncurrent assets 1,600,000
Goodwill 130,000
Estimated liability 280,000
Other liabilities 500,000
Cash 1,800,000
Estimated liability*** 80,000
Goodwill 80,000
Loss (expense) 150,000
Contingent liability 150,000
**2 criteria for a contingent liability:
1) It is probable
2) You can measure within a reasonable range what the liability will be
*** The contingent liability may change because: strategy. The new company may believe they can fulfill the liability much easier than that of the company it acquired.
6 A Yes they did occur within the measurement period of ONE year (2013-2014).
B
Goodwill 34,000,000
Identifiable intangibles 6,000,000
Contingent liability 5,000,000
Inventories 5,000,000
LTL 10,000,000
P&E, net 30,000,000
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Tangible assets 25,000,000
Intangible assets 90,000,000
Merger expenses** 900,000
Goodwill 100,000,000
Liabilities 55,000,000
Common stock 1,500,000
Additional paid in capital - stock issued** (2,250,000)
Cash 100,000,000
**Registration fees are not expensed with merger expenses. They simply reduce your capital stock.
10 (400,000-250,000) *.40 = 60,000 (10,000,000 - 6,000,000)*.1 = 400,000
(a) (500,000-250,000)*.35 = 87,500 (10,000,000 - 9,000,000)*.2 = 200,000
147,500 600,000
147,500 / (1 + 0.10) = 600,000 / (1+0.10) = 545,455
134,000 545,000
Acquisition cost **For both of these contigencies, you have to present vaue their totals after the probabilites for 2 years at 10%.
Price Paid $5,000,000
Fair value of stock, net 10,000,000
Fair value of earnout 134,000
Fair value of stock contingency 545,000
Total acquisition cost $15,679,000
FV of identifiable net assets acquired
Current assets 2,000,000
P, P, and E 12,000,000
Liabilities (8,000,000)
$6,000,000
Unreported intangibles $3,000,000
Goodwill $6,679,000
Current Assets 2,000,000
P, P, and E 12,000,000
Unreported intangibles 3,000,000
Goodwill 6,679,000
Liabilities 8,000,000
Earnout liability 134,000
Common Stock, $1 par 250,000
Additional paid in capital - stock issue 9,750,000
Additional paid in capital - stock contingency 545,000
Cash 5,000,000
(b) 1 Goodwill 100,000
Stock contingency 100,000
2 Loss on stock contingency 100,000
Stock contingency 100,000
You can measure within a reasonable range what the liability will be
*** The contingent liability may change because: strategy. The new company may believe they can fulfill the liability much easier than that of the company it acquired.
134,091
Earnout liability = Add. Paid in Cap =
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Stock Issued 30,000,000
FV of net assets, acquired
Current assets 500,000
Plant assets 700,000
Liabilities (450,000) (750,000)
Unreported intangibles (5,500,000)
Goodwill 23,750,000
Current assets 500,000
Plant assets 700,000
Unreported intangibles 5,500,000
Goodwill 23,750,000
Liabilities 450,000
Common Stock 1,000,000
Additional Paid in capital - stock issued 29,000,000
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400,000
250,000
650,000
x .50
325,000
306,604
**Registration fees are not expensed with merger expenses. They simply reduce your capital stock.
325,000 / 1+.06 =
(7,500,000 - 5,500,000)*.2 =
(6,500,000 - 5,500,000)*.25 =
**For both of these contigencies, you have to present vaue their totals after the probabilites for 2 years at 10%.