The Chambers Corporation was formed in early 2017. At the time of formation, Chamber spent the following amounts: accounting fees, $4,000; legal fees, $8,000; stock certificate costs, $3,000; initial franchise fee, $10,000; initial lease payment, $5,000; promotional fees, $3,000. Chamber intends to capitalize and amortize intangibles over the maximum allowable period in accordance with generally accepted accounting principles. Based on this strategy, what is Chambers's expense associated with organization costs in 2017?

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Quizplus · Accepted Answer

Under generally accepted accounting principles (GAAP), organization costs such as accounting fees, legal fees, and stock certificate costs are typically capitalized and amortized over their useful life. In this case, the accounting fees ($4,000), legal fees ($8,000), and stock certificate costs ($3,000) totaling $15,000 would be capitalized. However, the initial franchise fee, initial lease payment, and promotional fees are not considered organization costs and would be expensed in the period incurred. Therefore, the expense associated with organization costs in 2017 is $18,000, which includes the initial franchise fee ($10,000), initial lease payment ($5,000), and promotional fees ($3,000).

The Chambers Corporation Was Formed in Early 2017