is a global distributor of specialty teas and coffee beans and is registered with the SEC in the United States. The Company’s operations are primarily located in the United States, Canada, and . In March 2018, Teas R Uslooking to refocus efforts to only produce teas, entered into an agreement (the “Agreement”) with National Beverage, a coffee distributor in the United States looking to expand its international presence. National Beverage also is registered with the SEC in the United States.Pursuant to the Agreement, Teas R Us provided a sublicense to National Beverage for the distribution rights of Teas R Us coffee brand Café Mex, whereby National Beverage will distribute Café Mex in Canada. Under the Agreement, Teas R Us Co. transferred the existing customer contracts in Canada to National Beverage and an at-market supply contract with the producer of Café Mex. Teas R Us Co. retained all of its employees and distribution capabilities.The transaction closed on March 1, 2018.Additional Facts:Ø National Beverage incurred certain costs to acquire the sublicense of the distribution rights and a license to use the Café Mex brand. The costs included legal, accounting, and other professional or consulting fees totaling $50,000. Ø National Beverage agreed to transfer to Teas R Us Co. $3 million for the sublicense of the distribution rights of Café Mex.Ø Assume both companies have adopted FASB Accounting Standards Update No. 2017-01, Business Combinations: Clarifying the Definition of a Business.Ø When appropriate be sure to include ASC reference points. Use them (and cite them) whenever possible. Properly cite all references to articles, journals, websites. Required:1. Does the acquisition of the sublicense by National Beverage to distribute Café Mex meet the definition of a business?2. How should National Beverage account for the acquisition, including the treatment of the transaction costs? (Note that the response will be dependent on the response to Question 1.)
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