Accounting for Fuzzy Dice Inc. Acquisition of Tiny Tots Toys Llc
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ISSUE: Accounting for Fuzzy Dice Inc. acquisition of Tiny Tots Toys LLC related to decision (1) to use purchased facility to enter another business line or (2) renovate the facility to expand the current production.
BRIEF BACKGROUND OF COMPANY
Fuzzy Dice Inc. (“Fuzzy” or “the Company”) manufactures novelty items that it distributes to wholesalers and large online and direct-mail retailers. Fuzzy operates in an area where several other light manufacturers operate, one of which is Tiny Tots Toys LLC (“Tiny”), an educational children’s toy manufacturer. Tiny has been unable to turn a profit for the past few years and has recently filed for Chapter 11 bankruptcy protection.
Tiny’s primary asset is its manufacturing facility. The…show more content… If Fuzzy decides to operate the factory in its current capacity to manufacture children’s toys, the transaction should be accounted as an acquisition of business.
2. Even if Fuzzy decides to refurbish the factory to manufacture novelty items, the transaction still should be accounted as an acquisition of business.
AUTHORITATIVE AND INTREPRETIVE GUIDANCE CONSIDERED
Refer to ASC 805-10-20 (Business Combinations. Overall. Glossary)
Refer to ASC 805-10-55-4 through 55-9 ((Business Combinations. Overall. Implementation Guidance and Illustrations)
Refer to ASC 805-10-50-1 through 50-7 ((Business Combinations. Overall. Disclosure)
DETAILED DISCUSSION, ANALYSIS, EVALUATION OF ALTERNATIVES& REASONS FOR CONCLUSION
Fuzzy may obtain control of Tiny by acquiring its net assets or its equity interests. For a business combination to be within the scope of ASC 805, Tiny, over which control is obtained, must be a business. Under ASC 805-10-20 business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants. In addition ASC 805-10-55-4 through 55-9 help to identify what constitutes a business:
According to ASC 805-10-55-4 a business consists of inputs and processes applied to those inputs that have the ability to create outputs. Although businesses