ExpertMedium1 markMultiple Choice
CPA · Question 41 · Area II: Technical Accounting
In a business combination, the acquirer incurs the following costs:<br/>- Finder's fees: $50,000<br/>- Advisory and legal fees: $100,000<br/>- Costs to register and issue stock: $30,000<br/><br/>How should these costs be accounted for?
In a business combination, the acquirer incurs the following costs:<br/>- Finder's fees: $50,000<br/>- Advisory and legal fees: $100,000<br/>- Costs to register and issue stock: $30,000<br/><br/>How should these costs be accounted for?
Answer options:
A.
Expense $150,000; Reduce APIC by $30,000.
B.
Capitalize $180,000 to Goodwill.
C.
Expense $180,000.
D.
Capitalize $150,000; Expense $30,000.
How to approach this question
Separate Direct Acquisition Costs (Expense) from Stock Issuance Costs (Debit APIC).
Full Answer
A.Expense $150,000; Reduce APIC by $30,000.✓ Correct
A
ASC 805 requires that acquisition-related costs (finder's fees, advisory, legal) be expensed as incurred ($150,000). Costs to issue equity securities ($30,000) are treated as a reduction of the proceeds (Debit APIC).
Common mistakes
Capitalizing acquisition costs to Goodwill.
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