Sayon Co. issues 200,000 shares of $5 par value common stock to acquire Trask Co. in a purchase-business combination. The market value of Sayon’s common stock is $12. Legal and consulting fees incurred in relationship to the purchase are $110,000. Registration and issuance costs for the common stock are $35,000. What should be recorded in Sayon’s additional paid-in capital account for this business combination?
a. $1,545,000
b. $1,400,000
c. $1,365,000
d. $1,255,000
Answer:C
Choice “A,B,C” is incorrect. Per ASC Topic 805 the finder’s and consultant’s fees should be expensed. The SEC registration costs should be netted against the additional paid-in capital account.
Choice “B” is incorrect. Per ASC Topic 805 the finder’s and consultant’s fees should be expensed. The SEC registration costs should be netted against the additional paid-in capital account.
Choice “C” is correct. In a business combination accounted for as an acquisition, costs of registering securities and issuing common stock are netted against the proceeds and recorded in the additional paid-in capital account. Acquisition costs are expensed in the year the costs are incurred or the services are received, and the acquisition is recorded at the fair value of consideration given. Therefore, this answer is correct because the amount recorded in the additional paid-in capital account is equal to $1,365,000 [(200,000 shares × $7 per share) – $35,000 registration and issue costs].