ExpertHard1 markMultiple Choice
CPA · Question 35 · Area 3: Select Transactions
In a business combination, the acquirer incurred the following costs:<br/>- Finder's fee: $50,000<br/>- Legal fees for the acquisition: $100,000<br/>- Stock registration fees: $20,000<br/>- Audit fees for SEC registration: $10,000<br/><br/>How should these costs be treated?
In a business combination, the acquirer incurred the following costs:<br/>- Finder's fee: $50,000<br/>- Legal fees for the acquisition: $100,000<br/>- Stock registration fees: $20,000<br/>- Audit fees for SEC registration: $10,000<br/><br/>How should these costs be treated?
Answer options:
A.
Capitalize $180,000 to Goodwill.
B.
Expense $180,000.
C.
Expense $150,000; Reduce APIC by $30,000.
D.
Capitalize $150,000; Expense $30,000.
How to approach this question
Rule: Direct costs (legal, finder) -> Expense. Stock Issue Costs (registration, underwriter) -> Debit APIC (reduce equity).
Full Answer
C.Expense $150,000; Reduce APIC by $30,000.✓ Correct
C
Acquisition-related costs (finder's fees, legal fees) are expensed as incurred. Costs to issue stock (registration, audit for registration) are treated as a reduction of the issue price of the securities (Debit APIC).
Common mistakes
Capitalizing acquisition costs to Goodwill (old rule).
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