Question

ASC 805-50-30-2 states:

Asset acquisitions in which the consideration given is cash are measured by the amount of cash paid, which generally includes the transaction costs of the asset acquisition.

The journal entry to record the acquisition for treatment of transaction costs consists of:

License to Distribute: 2, 270,000

Contract: 780,000

         Cash: 3,000,000

         Accounting Fee: 50,000

Nature’s Best is transferring 3,000,000 in cash in exchange for the acquisition of assets which include the fair market value of both the customer contracts and the sublicense of the distribution rights. The legal, accounting, and other professional fees of 50,000 are incurred as part of the sublicense distribution rights.

***CAN SOMEONE TELL ME CORRECT ENTRY FOR THE CREDITS, MY DEDITS ARE CORRECT***

***CAN SOMEONE TELL ME CORRECT ENTRY FOR THE CREDITS, MY DEDITS ARE CORRECT***

Answer 1

DR. License to Distribute 2,220,000

DR. Contract 780,000

DR. Accounting Fee 50,000

CR. Cash. 3,000,000

CR. Accounting Fee Payable 50,000

Note - As per revised guidelines issued under Generally Accepted Accounting Principles (GAAP), transaction costs are not considered to be fair value exchanged between customer and seller.

Therefore, Accounting Fee has been taken as an expense and not capitalized.