Under ASC 805, how are acquisition-related costs (e.g., legal fees, finder's fees) treated?

Answer options:

Expensed as incurred.

Capitalized as part of Goodwill.

Deducted from Additional Paid-in Capital.

Amortized over 5 years.

How to approach this question

Rule: Transaction costs (lawyers, bankers) = Expense immediately. Stock issuance costs = Reduce Equity.

Full Answer

A.Expensed as incurred.✓ Correct

ASC 805 requires that acquisition-related costs (legal, accounting, valuation, professional fees) be expensed in the period in which the costs are incurred and the services are received.

Common mistakes

Capitalizing them into the purchase price (Goodwill).

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