Question

Coffee Co. (the “Company”) is a global distributor of organic coffee beans 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, Coffee Co., looking to refocus efforts to only produce coffee products, entered into an agreement (the “Agreement”) with Nature’s Beverage, a food distributor in the United States looking to expand its international footprint (the “Transaction”). Nature’s Beverage is registered with the SEC in the United States. Pursuant to the Agreement, Coffee Co. provided a sublicense to Nature’s Beverage for the distribution rights of Coffee Co.’s South American local tea brand, Herbal T, whereby Nature’s Beverage will distribute Herbal T in South America. Under the Agreement, Coffee Co. transferred the existing customer contracts in South America to Nature’s Beverage and an at-market supply contract with the producer of Herbal T. Coffee Co. retained all of its employees and distribution capabilities. The Transaction closed on March 1, 20X8 (the “Closing”).

Additional Facts:

• Nature’s Beverage incurred certain costs to acquire the sublicense of the distribution rights and a license to use the Herbal T brand. The costs included legal, accounting, and other professional or consulting fees totaling $50,000. • Nature’s Beverage agreed to transfer to Coffee Co. $3 million for the sublicense of the distribution rights of Herbal T. • Assume both companies have adopted FASB Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business.

Required:

1. Does the acquisition of the sublicense by Nature’s Beverage to distribute Herbal T meet the definition of a business?

1. Identify the issue (s).

2. List the alternatives in response to the issue (s) if there are any.

3. Identify and summarize the relevant professional pronouncements (ASC 805-10-55)

4. Explain how these pronouncements apply or relate

Answer 1

To solve this question just input those variables which are to be used in logistic regression, as the question talks about using two variables only that is total loans and leases to total assets & total expenses/ total assets, so we will not input total cap/assets as an input variable in our excel, here we go

As one can see, we have taken only two variables , total exp/assets and total lns & leases/ assets in calculation, follwing steps have been followed to construct the above table

1. Assume logit= b0+ b1* independent variable1+ b2* independent variable 2 , take values of b0=0.1, b1=0.1, b2=0.1, note that these values of b0, b1 and b2 are just taken for calculation, one could assume any values here for bo , b1 and b2

2. Calculate exponential of logit in the next column by using exp (value in previous column)

3. Calculate probability by using formula, probability= exp (logit)/ { 1+ exp(logit)} in the next column

4. In next column, calculate log likelihood by using formula : financial condition value (i.e. 1 or 0) * LN( probability calculated in previous column) + (1- financial condition value)* LN( 1- probability calculated in previous column)

5. take the total of the column values of log likelihood

6. use solver function in excel to change this total by putting max value of 0 and changing the variable cells containing assumed values of b0, b1 and b2 , by clicking on solve, you will get actual values of b0, b1 and b2

which comes out to be b0=-14.72, b1=89.83, b2= 8.37

therefore you will get logit as

-14.72+ 89.83* Total exp/assets+8.37*Total lns & lsses/ assets

With values given in the question as total exp/ assets= 0.11 and total loans & leases/ assets= 0.6 , we get

logit as -14.72+ 89.83* 0.11+ 8.37*0.6= 0.1833

exp (logit) = 1.20

Probability= 0.546

Loglikelihood= 1*LN(0.546)+0*LN(1-0.546)= LN(0.546)= -0.605