How are stock issuance costs and direct combination costs treated in a business combination which is accounted for as an acquisition when the subsidiary will retain its incorporation?
A) Stock issuance costs are a part of the acquisition costs, and the direct combination costs are expensed.
B) Direct combination costs are a part of the acquisition costs, and the stock issuance costs are a reduction to additional paid-in capital.
C) Direct combination costs are expensed and stock issuance costs are a reduction to additional paid-in capital.
D) Both are treated as part of the acquisition consideration transferred.
E) Both are treated as a reduction to additional paid-in capital.

Question

Quizplus · Accepted Answer

Direct combination costs are expensed as they are not considered part of the acquisition cost, while stock issuance costs reduce additional paid-in capital as they are related to the equity issuance process.

How Are Stock Issuance Costs and Direct Combination Costs Treated