Problem
Research Case: Acquisition Valuation Issues-Writing an issues Memo. respond to each of the issues raised in the case. must cite the proper authority from the Codification database. Reference to the Codification will be in the following format "ASC 814.29.22 (a)."
In January 2022, Roosevelt Corporation acquired Stanford Company in business acquisition. By early April 2022 (almost 3 months from the date of acquisition), the following issues came to light:
• As part of the acquisition, a piece of property planned for commercial real estate development was valued at $5,000,000. Two months after the acquisition date, it was determined that mineral reserves existed under the property. The property value is now estimated to be worth $8,000,000 as a potential mining property.
• Initially, Roosevelt expected to evict buy out the existing leases from tenants on the property (see #1) in order to develop it for commercial real estate purposes. The estimated costs to buy out the leases was $500,000. After the discovery of the oil reserves beneath the property, Roosevelt may not need to evict the existing tenants because of the change in the use of the property but the cost to buy them out will now probably increase to $1,000,000.
• Roosevelt planned to retain the Stanford Company's current CFO after the business acquisition was finalized. However, in early March 2022, the CFO's long-term secretary had filed a $5,000,000 lawsuit against the company alleging that the CFO had sexually harassed her for several years and has claimed for wrongful dismissal since she has been fired. The secretary had not disclosed any sexual harassment previously because the CFO was a close personal friend of the former owners. The CFO denies the harassment claim and claims that any relationships were consensual.
In determining the goodwill from the acquisition, Roosevelt had used
a) a $5,000,000 value for the land
b) a $500,000 liability for the eviction costs and
c) nothing for the lawsuit.
Task
Roosevelt CEO would like to leave the valuations and to regard any changes as post-acquisition. Is this acceptable and what additional information might be necessary to assist you in making a conclusion?