Question
Hello, the help is really needed with the questions below Chai Co. (the Company) is a global distributor of organic hemp CBD oil and teas
Hello, the help is really needed with the questions below
Chai Co. (the "Company") is a global distributor of organic hemp CBD oil and teas that is registered with the SEC in the United States. The Company's operations are primarily located in the United States, Canada, and South America. In March 20X8, Chai Co., looking to refocus efforts to only produce tea products, entered into an agreement (the "Agreement") with Nature's Bio, a feel good leftie tree hugger enviro-company in the United States looking to expand its international footprint (the "Transaction"). Nature's Bio is registered with the SEC in the United States.
Pursuant to the Agreement, Chai Co. provided a sublicense to Nature's Bio for the distribution rights of Chai Co.'s hemp product brand, Hemp2Nature, whereby
Nature's Beverage will distribute Hemp2Nature in South America. Under the Agreement, Chai Co. transferred the existing customer contracts in South America to Nature's Bio and an at-market supply contract with the producer of Hemp2Nature, Chai Co. retained all of its employees and distribution capabilities.
The Transaction closed on March 1, 20X8 (the "Closing").
Additional Facts:
- Nature's Bio incurred certain costs to acquire the sublicense of the distribution rights and a license to use the Hemp2Naturebrand. The costs included legal, accounting, and other professional or consulting fees totaling $50,000.
- Nature's Bio agreed to transfer to Chai Co. $3 million for the sublicense of the distribution rights of Hemp2Nature.Assume both companies have adopted
- FASB Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.
Required:
- Does the acquisition of the sublicense by Nature's Bio to distribute Hemp2Nature meet the definition of a business?
- How should Nature's Bio account for the acquisition, including the treatment of the transaction costs? (Note that the response will be dependent on the response to Question 1.)
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