Discussion Post: Accounting Research
FACTS
• Larry's Lemonade is a distributor of organic lemonade and lemon powder. It operates mostly in the Western Hemisphere.
• In March 2020, Larry's Lemonade wanted to focus more on lemonade. To do so, it entered into an agreement on March 31, 2020 with FunSun Foods, a US-based food distributor looking to expand internationally.
• Larry's Lemonade and FunSun are each registered with the SEC.
• As part of the agreement, Larry's gave FunSun a sub-license allowing FunSun to distribute Larry's Bolivian Blast brand of lemon powder throughout South America.
• Also as part of the agreement, Larry's transferred its list of current and former customers and other pertinent contracts in South America to FunSun.
• Lastly, Larry's also assigned to FunSun its contract with the supplier that had been supplying Larry's with its Bolivian Blast secret ingredient.
• Larry's did not transfer any of its employees to FunSun.
• Larry's also did not transfer any portion of its distribution function to FunSun.
• FunSun paid $66.1 Million to Larry's for the distribution rights and the right to use the Bolivian Blast brand.
• FunSun also incurred legal, accounting, and other professional and consulting fees of $7.4 million to get the deal done.
Provocations:
• When FunSun's acquired the sublicense to distribute Bolivian Blast lemon powder from Larry's, did FunSun acquire a business or did it merely acquire assets?
• How should FunSun account for the $66.1M cost of the distribution rights?
• How should FunSun account for the transaction costs it incurred?
• How would your answer to Provocation 1 change, if at all, if FunSun was under IFRS?
• How would your answer to Provocation 2 change, if at all, if FunSun was under IFRS?
• How would your answer to Provocation 3 change, if at all, if FunSun was under IFRS?
The response should include a reference list. One-inch margins, Using Times New Roman 12 pnt font, double-space and APA style of writing and citations.