Case 11-7 Food for Thought Allfoods Corp. (Allfoods) is a calendar year-end company. On February 1, 2009, Allfoods announced that it was acquiring 80 percent of the outstanding common stock of Baked Beans Corp. (Baked Beans) in a business combination. On the acquisition date, Allfoods paid $40 million in cash and issued two million shares of Allfoods common stock to the selling shareholders of Baked Beans. All of the outstanding stock options granted to employees of Baked Beans will be replaced with Allfoods stock options as required by the merger agreement. Allfoods is accounting for the transaction in accordance with ASC 805, Business Combinations. 1. Determining Consideration Transferred ...view middle of the document...
e., demolition costs of the building, net of the fair value of scrap from the building and nonmovable equipment). The movable equipment (i.e., equipment that could be sold separately) could be sold at auction for $2 million. The Chino manufacturing facility (as acquired) is estimated to be worth $36 million. Management determined that the individual fair value of the land being used for industrial purposes is $21 million and that the fair value of the buildings and machinery as currently being used (for industrial purposes) is $7 million. 3. Valuation of Intangible Assets The in-process research and development (IPR&D), which is proprietary food freezing technology submitted for Food and Drug Administration (FDA) approval, has a fair value of $15 million. The company considers its R&D to be in-process because it has not yet obtained FDA approval and additional R&D may be required. Allfoods management has determined that the fair value of the Baked Beans trademark is $3 million, using a market participants’ viewpoint. Management has also determined that it will not use...
