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Case One: Cool Beans
Rouses Corp. (Rouses) is a calendar year-end company. On February 1, 2014, Rouses announced that it was acquiring 80 percent of the outstanding common stock of Best Beans Ever Corp. (Best Beans Ever) in a business combination. On the acquisition date, Rouses paid $40 million in cash and issued two million shares of Rouses common stock to the selling shareholders of Best Beans Ever. All of the outstanding stock options granted to employees of Best Beans Ever will be replaced with Rouses stock options as required by the merger agreement. Rouses is accounting for the transaction in accordance with ASC 805, Business Combinations.
1. Determining Consideration Transferred On August 1, 2014, Rouses acquired Best Beans Ever. The Rouses share price was $30 on the announcement date and $35 on the acquisition date. The parties agreed that Rouses would issue the selling shareholders an additional one million shares if Best Beans Ever revenues for the 12-month period after the acquisition were at least $150 million. The fair value of the contingent consideration was determined to be $20 million as of the acquisition date. The value of the replacement stock option awards attributable to pre-combination services is $5 million, and the portion that relates to post-combination services is $7 million. Rouses incurred $4 million of acquisition related costs.
2. Fair Value of Assets Acquired and Liabilities Assumed Best Beans Ever owns a manufacturing facility in Lafayette, Louisiana. The facility is comprised of land, two buildings, and machinery. There are no other significant assets located at this facility. The land could be rezoned into a residential subdivision for a nominal fee and management has determined that the fair value of the underlying land as residential property would be $30 million, after considering costs necessary to prepare it for use as residential lots (i.e., demolition costs of the building, net of the fair value of scrap
Rouses Corp. (Rouses) is a calendar year-end company. On February 1, 2014, Rouses announced that it was acquiring 80 percent of the outstanding common stock of Best Beans Ever Corp. (Best Beans Ever) in a business combination. On the acquisition date, Rouses paid $40 million in cash and issued two million shares of Rouses common stock to the selling shareholders of Best Beans Ever. All of the outstanding stock options granted to employees of Best Beans Ever will be replaced with Rouses stock options as required by the merger agreement. Rouses is accounting for the transaction in accordance with ASC 805, Business Combinations.
1. Determining Consideration Transferred On August 1, 2014, Rouses acquired Best Beans Ever. The Rouses share price was $30 on the announcement date and $35 on the acquisition date. The parties agreed that Rouses would issue the selling shareholders an additional one million shares if Best Beans Ever revenues for the 12-month period after the acquisition were at least $150 million. The fair value of the contingent consideration was determined to be $20 million as of the acquisition date. The value of the replacement stock option awards attributable to pre-combination services is $5 million, and the portion that relates to post-combination services is $7 million. Rouses incurred $4 million of acquisition related costs.
2. Fair Value of Assets Acquired and Liabilities Assumed Best Beans Ever owns a manufacturing facility in Lafayette, Louisiana. The facility is comprised of land, two buildings, and machinery. There are no other significant assets located at this facility. The land could be rezoned into a residential subdivision for a nominal fee and management has determined that the fair value of the underlying land as residential property would be $30 million, after considering costs necessary to prepare it for use as residential lots (i.e., demolition costs of the building, net of the fair value of scrap