In a business combination, the acquirer incurs the following costs: - Finder's fees: $50,000 - Advisory and legal fees: $100,000 - Costs to register and issue stock: $30,000 How should these costs be accounted for?

Answer options:

Expense $150,000; Reduce APIC by $30,000.

Capitalize $180,000 to Goodwill.

Expense $180,000.

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

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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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?

How to approach this question

Full Answer

Common mistakes

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