The company considers its R&D to be in-process because it has not yet obtained FDA approval and additional R&D may be required. Rouses management has determined that the fair value of the Best Beans Ever trademark is $3 million, using a market participants’ viewpoint. Management has also determined that it will not use the trademark because it intends to distribute the Best Beans Ever products under the Rouses trademark. Management has also determined that it will not sell the trademark because it believes that this could potentially result in new participants entering the market, thus reducing its market share. No amounts were recorded in the balance sheet of Best Beans Ever for the research and development costs related to their proprietary freezing technology. The trademark has a carrying value of $2 million in Best Beans Ever financial statements related to costs that it incurred in purchasing the trademark.
Required: Prepare a memo to the board members of Rouses (mostly family members, non-accountants) answering the following questions. Be sure to justify your answers.
• What is the total consideration transferred by Rouses in the acquisition of Best Beans Ever?
• On what premise should management record the land and buildings, i.e., the “in-use” or “in-exchange” premise?
• What fair values should be recorded for the intangible assets as part of the acquisition