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Golden Gate University Accounting 300 Final Assignment – Spring 2014 On July 31, 2013, Danerys Co., a private company, purchased all the net assets of King’s Landing Co., another private company. The compensation consisted of $150M in cash plus contingent consideration. The contingent consideration was payable in cash and terms were as follows: Based on pre tax income of Landings Co. from August 1, 2013 to July 31, 2014 If pre tax income is less than $30M, no amounts are paid Beginning at $30M and for each $1M in additional earning: $1M in cash on a cliff basis (so, between $30.00M and $31.99M only $1M in cash), up to $10M in payments, i.e. this maxes out at $40M pre tax income On July 31, 2013, Landings Co. balance sheet consisted of the following: Cash $10M Receivables $30M, net of a valuation allowance of $2M Deferred commissions $5M Total current assets $45M Internally developed technology $10M, net of accumulated depreciation of $15M Total assets $55M Accounts payable $10M Deferred revenue $20M Total current liabilities $30M Total equity $25M Total liabilities and equity $55M Additional information related to the balance sheet consisted of the following: Receivables – Danerys Co. concurred with Landings Co. about the amount of the valuation allowance, i.e. that the fair value of the receivables equaled the net book value Deferred commissions – Represented payments to sales personnel for obtaining revenue contracts Technology consists of various systems – Danerys Co. estimates that it would take 200,000 man hours at $100 per man hour to rebuild the systems still in use. Landings Co.’s technology is cutting edge, so Danerys does not consider any of the equipment to be obsolete. Deferred revenue – Consists primarily of delivered Technology. On going costs to perform required maintenance for the customers are only $1M with a 25% profit margin considered appropriate. Danerys believes that the probabilities earn outs are: 5% for…
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Accounting 30….docx