ExpertMedium1 markMultiple Choice
CPA · Question 32 · Area II: Technical Accounting
In a business combination, how should the acquirer account for the following costs?<br/>1. Finder's fees paid to an investment bank.<br/>2. Costs to register and issue stock used as consideration.
In a business combination, how should the acquirer account for the following costs?<br/>1. Finder's fees paid to an investment bank.<br/>2. Costs to register and issue stock used as consideration.
Answer options:
A.
- Expense as incurred; 2. Reduction of Additional Paid-in Capital (APIC).
B.
- Capitalize to Goodwill; 2. Expense as incurred.
C.
- Expense as incurred; 2. Expense as incurred.
D.
- Capitalize to Goodwill; 2. Reduction of APIC.
How to approach this question
Distinguish between direct acquisition costs (Expense) and stock issuance costs (Equity reduction).
Full Answer
A.1. Expense as incurred; 2. Reduction of Additional Paid-in Capital (APIC).✓ Correct
A
ASC 805 requires acquisition-related costs (finder's fees, advisory, legal, valuation) to be expensed in the period incurred. Costs to issue debt or equity securities are treated as a reduction of the proceeds (Debit APIC for stock).
Common mistakes
Capitalizing transaction costs to Goodwill (old rule).
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