Paul Berro
Accounting 473, Case 1
1-25-16

Fuzzy Dice INC. is a company that manufactures novelty items that are under high demand. Tiny Tots Toys produce educational toys for children and have filed for bankruptcy. Fuzzy INC would like to acquire all of the assets from Tiny Tots Toys but they do not know what to do with the factory after. They are thinking of refurbishing it and manufacturing novelty items. This is what happens in the business world; you buy and you sell, and once you get in trouble you try to bail out.
In my opinion, the definition of a business is an entity that has three elements; inputs, processes, and outputs. Under 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 usually have outputs, outputs are not usually required for an integrated set to qualify as a business. The three elements of a business are defined as follows, an input is any economic resource that creates or has the ability to create, outputs when one or more processes are applied to it. An example of that would be long lived assets. A process is any system, standard, protocol, convention, or rules that when applied to input or inputs has the ability to create outputs. An example of that would be operational processes or resource management processes. An output is defined as the result of inputs and processes applied to those inputs that provide or have the ability to provide a return in the form of dividends, lowers costs, or other economic benefits directly to investors, owners, or other participants”(ASC 805-10-55-4).
The acquisition of a business can either be a business acquisition or an asset acquisition. There are 4 steps to the acquisition method. According to ASC 805-10-05-4 “The first step is whether a particular transaction or event is a business combination. Step number two is the identification of the acquirer and the acquisition date. The third step is the period of time the acquirer has to adjust provisional amounts. The fourth and final step is determining what is part of a business combination transaction”. When deciding whether it is an acquisition of a business or acquisition of assets you must take into account what was explained above. I believe it is an acquisition of a business because it fits all of the important elements of a business as explained above. It cannot be an asset acquisition because Fuzzy INC. did not file for bankruptcy; Tiny Tots did.
If Fuzzy decides to refurbish the factory to refurbish manufactory novelty items it would not affect its assessment of how to account for the transaction under ASC 805. There is no reason why it would not stay as a business acquisition because nothing has really changed. What they basically did was acquire the assets from Tiny Tots Toys and all they had left was the factory. They did the smart thing and refurbished the factory into what they are already working with, Novelty items. Under ASC 805-25-9 it states “An acquirer sometimes obtains control of an acquiree in which it holds an equity interest and receive equity in stages. This is referred to as a step acquisition”. This explains what happened in our case in which Fuzzy INC took control of the assets first and the factory after that. No where under ASC 805 does it state that the change from business acquisition to asset acquisition must be made because of a refurbish of a factory.