Case 19-7

Accounting for Contingent Payments to Employees or Selling Shareholders in a Business Combination

Company G (G), an SEC registrant, is a global financial advisory and asset management firm. Company P (P), a private company, offers advisory services for (1) mergers, acquisitions, and divestitures; (2) capital structure (including initial public offerings); (3) government advisory, including strategic, finance and capital markets related policy considerations; and (4) restructurings.

Case Facts

On September 18, 20X8, (the “Closing”), G and P executed an acquisition agreement (the “Agreement”) whereby G acquired 100 percent of the outstanding shares of P (the “Acquisition”). At the time of close, P had 10 employees that had over 200 combined years of financial and strategic advisory experience. Company P was owned as follows:

• Founder — 85 percent.

• Senior advisor — 10 percent.

• Other employees (four in total) — 5 percent.

  The purchase price was calculated using a revenue multiple that was established using market data at the midpoint and transferred in exchange for 100 percent of the outstanding shares to the Founder ÷ employees who owned 100 percent of P (collectively, the “Shareholders”) on a pro rata basis. The total purchase price comprised the following:

  • Cash = $1 million.

  • Shares = 100,000 shares in G (worth $3.3 million).

  • Delayed Consideration = 120,000 G shares, but issued to the Shareholders under the terms below (value assuming a 4-year vesting restriction = $5 million; assuming a 10-year vesting restriction = $4 million).

o Delayed consideration is held by an independent third party (Exchange Co) and on the fourth anniversary of the Closing, Exchange Co shall release the Delayed Consideration to the Shareholders, subject to the Shareholder being employed on such date.

o If a Shareholder is no longer employed on the fourth anniversary, the Delayed Consideration issued to such Shareholder will continue to be held by Exchange Co until the tenth anniversary of the Closing, at which point Exchange Co shall release the Delayed Consideration to the Shareholders.

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Case 19-7: Accounting for a Contingent Payments to Employees or
Selling Shareholders in a Business Combination Page 2

• Earnout Consideration = Up to 600,000 shares (valued at total of $20 million).

o The Earnout Consideration will be contingent upon achievement of revenue hurdles over a period beginning on September 18, 20X8, and ending on December 31, 20X2 (“Earnout Period”).

o To the extent the performance targets below are achieved, Exchange Co shall deliver the relevant Earnout Shares to the Shareholders on a pro rata basis. However, if and to the extent certain performance targets described below are not achieved, in whole or in part, no Earnout Consideration will be paid.

•  First Earnout Consideration — If revenue exceeds $10 million in the Earnout Period, the Shareholders will be entitled to 200,000 shares.

•  Second Earnout Consideration — If revenue exceeds $20 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.

•  Third Earnout Consideration — If revenue exceeds $30 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.

o The Shareholders are still entitled to the Earnout Consideration in the event that targets are met, but they are not employees of G at the time the Earnout Consideration is earned.

Other Key Facts

• Company P meets the definition of a business under ASC 805.

• Each employment agreement executed by G and the Shareholders contains compensation that is commensurate with the service each respective Shareholder is providing to G.

• The Shareholders have at-will employment agreements with G.

• If the Shareholders were to leave, G would be able to replace them with an existing G investment banker; therefore, the Shareholders are not integral to the future success of the acquired business.

• The fair value of P was determined to be $24 million.

• The Earnout Consideration is not being treated as compensation expense for tax purposes.

Copyright 2019 Deloitte Development LLC All Rights Reserved.

Case 19-7: Accounting for a Contingent Payments to Employees or
Selling Shareholders in a Business Combination Page 3

Required:

If there was a change to the case facts, and the Shareholders were no longer entitled to the Earnout Consideration if they were not employees of G at the time the revenue targets were met, should the Earnout Consideration to the Shareholders be accounted for as purchase consideration in exchange for the Acquisition or as compensation for postcombination services?

Set up and solve the given BVP heat problem. Suppose there is a rod of length L coinciding on the x-axis from 0 ≤ x ≤ L with insulated ends, and with an initial temperature profile of f(x).
Solve the Heat Equation

Question 2: Preparation and Presentation of the Income Statement Flexible and Confused Limited has just employed you as the new finance director. The first task you have been assigned to complete is to prepare the income statement for the 12-month period ended March 31, 2018. On your desk on your first day, the previous finance director left valuable information to complete the task. 1. During the year Flexible and Confused Limited – a company that sells dishwashers – sold a total of 13,187,000 units at an average sales price of $41.25. 2. The old finance director also indicated that direct labour, direct material and applied overhead were equal to 20%, 12% and 25% of total sales revenue. 3. Following is a list of other expenses incurred by the company. Expense Account Total Incurred Advertising and Marketing Costs $5,512,000.00 Sales Entertainment $2,561,000.00 Selling Insurance $690,000.00 Office Repairs and Maintenance $1,590,000.00 Office Depreciation $14,457,000.00 Wages of General Operations Staff $12,801,000.00 Salaries Sales Staff $11,036,000.00 Administrative Travel Costs $1,260,000.00 4. On January 1, 2018, the company sold a piece of equipment held for investment and recognized a loss on the sale of $4,221,000. 5. The company also enjoyed revenue from other sources noted as: Other Income totalling $9,050,000 and Interest Revenue totalling $8,661,000. 6. On April 1, 2017, the company sold land that resulted in a loss of $4,891,000. 7. If the company reports a profit during the year, the effective corporate tax rate is 25%. If a loss is reported the effective tax rate is zero. 8. The company incurred finance interest charges during the accounting period of $22,890,000. 9. The company is involved in joint venture operations. As a result of goof financial conditions, the company recorded a net gain of $6,079,000 from its share of the joint venture operations. 10. From the operations of its associate firms, the company expects to record a net gain of $42,287,000 for the financial period ended March 31, 2019. Required: Using the information supplied, prepare an income statement for Flexible and Confused Limited for the accounting period that conforms with IFRS IAS 1 recommendation and course requirements. (Hint: Expenses should be classified by function (e.g., cost of goods sold) not nature.

explain and justify all your answer clearly with steps thanks

Suppose that a group G acts on its power set P(G) by conjugation.

a) If H≤G, prove that the normalizer of N(H) is the largest subgroup K of G such that HEK. In particular, if G is finite show that |H| divides |N(H)|.

b) Show that H≤G⇐⇒every element B∈OH is a subgroup of G with B∼=H.

c) Prove that HEG⇐⇒|OH|= 1.

How to write a hypothesis statement for Data analysis and graphing lab using the metric system?

Question Consider the function ?(?) = ??2 and x = 0, 0.25, 0.5, 1. Then use the suitable Newton interpolating polynomial to approximate f(0.75). Also, compute an error bound for your approximation

Dont use a sheet to solve thanks numerical methods

Search the internet for real-world applications of logarithms or exponential functions. Share the application you discovered with the class along with how it relates to logarithms or exponential functions. Besure to cite the resource. What is the relationship between exponentials and logarithms?

A company produces wooden chairs and tables. Each chair uses 10 lbs. of wood and takes 10 hours to construct. Each table uses 15 lbs. of wood and takes 5 hours to construct. There are up to 150 lbs. of wood available and up to 110 labor hours available. If the profit on each chair is $3 and the profit on each table is 4$. We wish to maximize the profit. Let x be the number of chairs produced and y be the number of tables produced.

1. What is the formula to be maximized?
2. Write down the set of linear inequalities associated with the situation. Note: You should recognize that x and y can’t be negative.
3. Graph the feasible region by hand.
4. Find the coordinates of each vertex of the feasible region
5. Use these vertices to find the associated maximum

For each counties in the metro area, it gives an estimate of the population on Jan. 1, 2000, and the percent change between 1/1/2000 and 1/1/2010. If we assume that the percent change for each county is constant, then the population of each county can be modeled using an exponential function with a growth rate given by the annual percentage change.

1. Find an exponential function of the form P(t)=P₀e^kt , which gives the population of the county in the year 2000 + t.
2. Evaluate the function at t = 16 and give a verbal interpretation of your answer.
3. Find the derivative of the function.
4. Evaluate the derivative at t = 16 and give a verbal interpretation of your answer.

Let l:ax1+bx2 =c be a line where a^2+b^2 =1.Find the map f: R^2 →R^2 that represents the reflection about l.

Verify that the transformation f found in Problem 1 is an isometry.

Use the simplex method to determine whether the following LOP is optimal, unbounded, or infeasible.

Maximize z = x1 − x2

Subject to 2x1 − x2 = −5

x1 − 2x2 ≤ 3

−x1 + x2 ≤ −1

and x1 ≥ 0.

Solve the given integral equation for y(t):

y(t) + 10 ∫(0 to t)  cos(5(t−τ))y(τ)dτ = 6t

Given the sub-ring A = Z × Z ⊂ R ² ,Where, in R ² we have the sum operation and the complex product.

a) Prove that indeed A it is a sub-ring.

b) ¿It is A an entire domain?

c)Consider U = {(0, n) : n ∈ Z}, prove that U is an ideal of A.

d) Calculate A/U.

e) ¿It is U an ideal of R²?

I need all the paragraphs thanks

Given the differential equation (ax+b)²d²y/dx²+(ax+b)dy/dx+y=Q(x) show that the equations ax+b=e^t and t=ln(ax+b) reduces this equation to a linear equation with constant coefficients hence solve

(1+x)²d²y/dx²+(1+x)dy /dx+ y=(2x+3)(2x+4)