[SchruteBeet]

A combination is accounted for as an acquisition. Which of the following would be considered part of the acquisition cost of an acquired entity in a business combination?

Costs incurred by the acquiring entity that are directly related to the acquisition
Costs incurred by the acquired entity that are directly related to the acquisition
Indirect acquisition costs incurred by the acquiring entity
A.I only
B.I and II only
C.I and III only
D.None of these items would be part of the acquisition cost.

Answer: D. FASB ASC 805-10-25-21 requires that acquisition-related costs be charged to expense. All of these costs are acquisition-related costs and should be expensed in the period incurred.

I want to confirm my understanding that the answer is D because all the costs relate to the acquiring entity and not the acquired entity, is that right?

[Jott]

as i understood it, the acquisition cost is the consideration given to acquire the entity (such as cash or the FMV of stock). costs related to the acquisition (such as legal or finders fees, stock issuance costs, and costs to relocate) are not acquisition costs as they are not part of the consideration given to acquire the entity and would be expensed.

[SchruteBeet]

Thanks @Jott. I seemed to have confused the terminology acquisition costs and costs related to acquisition. I kept think of the latter as direct costs (expensed) and indirect costs (reduction of APIC).

[Author]

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