Question

Miguel Corporation and Forest Company merged as of January 1, 20X3. Miguel paid finder's fees of $36,000 and legal fees of $8,000. Miguel also paid audit fees related to the stock issuance of $12,000, stock registration fees of $7,000, and stock listing application fees of $3,000.

Based on the preceding information, under the acquisition method, what amount relating to the business combination would be expensed?
A) $22,000
B) $36,000
C) $44,000
D) $66,000

Answer 1

The amount to be expensed under the acquisition method for the business combination is $36,000, which represents the finder's fees. Other fees related to stock issuance are typically capitalized.

Step-by-step explanation:

Under the acquisition method, the amount relating to the business combination that would be expensed includes finder's fees, legal fees, and audit fees related to stock issuance, stock registration fees, and stock listing application fees. The finder's fees of $36,000 must be expensed as they are directly related to the merger.

However, expenses related to the stock issuance such as audit, registration, and listing application fees (totaling $22,000) are typically capitalized as part of the cost of the investment rather than expensed. Therefore, the correct amount to be expensed for the business combination under the acquisition method is $36,000.