On June 28 Lexicon Corporation acquired 100% of the common stock of Gulf & Easte

Question

On June 28 Lexicon Corporation acquired 100% of the common stock of Gulf & Eastern. The purchase price allocation included the following items: $4 million, patent; $3 million, developed technology; $2 million, in-process research and development; $5 million, goodwill. Lexicon’s policy is to amortize intangible assets using the straight-line method, no residual value, and a five-year useful life.

What is the total amount of expenses (ignoring taxes) that would appear in Lexicon’s income statement for the year ended December 31 related to these items?

What is the total amount of expenses (ignoring taxes) that would appear in Lexicon’s income statement for the year ended December 31 related to these items?

Explanation / Answer

Hi,

Please find the answers as follows:

Goodwill and In-process research and development cannot be amortized. Therefore, only patent and developed technology can be amortized.

Expenses for the Year would include the following:

Amortization of Patent (4000000/5)*6/12 = 400000 (Period for which it is amortized is 1st July to 31st December)

Amortization of Developed Technology (3000000/5)*6/12 = 300000 (Period for which it is amortized is 1st July to 31st December)

Total Expense = 700000

Thanks.

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