CASE1: Coffe

Coffee Co. (the Company) is a global distributor of organic coffee beans and teas that is registered

with the SEC in the United States. The Companys operations are primarily located in the United States,

Canada, and South America. In March 20X8, coffee Co., looking to refocus efforts to only produce

coffee products, entered into an agreement (the Agreement) with DESTINYs Beverage, a food distributor in

the United States looking to expand its international footprint (the Transaction). DESTINYs Beverage is

registered with the SEC in the United States.

Pursuant to the Agreement, coffee Co. provided a sublicense to

DESTINYs Beverage for the distribution rights of coffee Co.s South American local tea brand, Herbal T, whereby DESTINYs

Beverage will distribute Herbal T in South America.

Under the Agreement, coffee Co. transferred the existing customer contracts in South America to DESTINYs Beverage and an

at-market supply contract with the producer of Herbal T. coffee Co. retained all its employees and

distribution capabilities.

The Transaction closed on March 1, 20X8 (the Closing).

Additional Facts:

DISTINYs Beverage incurred certain costs to acquire the sublicense of the distribution rights and a license to

use the Herbal T brand. The costs included legal, accounting, and other professional or consulting fees

totaling $50,000.

DISTINYs Beverage agreed to transfer to coffee Co. $3 million for the sublicense

of the distribution rights of Herbal T.

Assume both companies have adopted FASB

Accounting Standards Update No. 2017-01, Business

Combinations (Topic 805): Clarifying the Definition of a Business.

Required:

a. Case Summary:

b. Case Analysis:

1. Does the acquisition of the sublicense by DESTINYs Beverage to distribute Herbal T meet the definition of a business?

Yes, because ......................................................... Point

No, because ........................................................... Point

We think the correct.......... because...................... 5 Points

2. How should DESTINYs Beverage account for the acquisition, including the treatment of the transaction costs?

(The response will be dependent on the response to Question 1)

Applicable Professional Pronouncements FASB Accounting Standards Update No. 2017-01,

Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01) ASC 805-10,

Business Combinations: Overall (ASC 805-10) ASC 805-50,

Business Combinations: Related Issues (ASC 805-50)