On June 30, 2016, Epstein completed the acquisition of the Johnstone Corporation

Question

On June 30, 2016, Epstein completed the acquisition of the Johnstone Corporation for $2,600,000 in cash. The fair value of the net identifiable assets of Johnstone was $2,200,000.

Included in the assets purchased from Johnstone was a patent that was valued at $96,000. The remaining legal life of the patent was 13 years, but Epstein believes that the patent will only be useful for another eight years.

Epstein acquired a franchise on October 1, 2016, by paying an initial franchise fee of $264,000. The contractual life of the franchise is 11 years.

Prepare year-end adjusting journal entries to record amortization expense on the intangibles at December 31, 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Prepare the intangible asset section of the December 31, 2016, balance sheet. (Do not round intermediate calculations.)

References

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General JournalDifficulty: 3 HardLearning Objective: 11-04 Calculate the periodic amortization of an intangible asset.

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Explanation / Answer

1.                Sl. No. Particulars Dr./Cr. Debit Amount Credit Amount a. Net Assets Dr 22,00,000 Goodwill Dr 4,00,000 Cash Cr 26,00,000 b. Amortization expense Dr 6,000 Accumulated Amortization for Patent (96000/8x6/12) Dr 6,000 c. Amortization expense Dr 6,000 Accumulated Amortization for Franchise (264000/11x3/12) Cr 6,000 d. Goodwill has not been amortized. Note 1 : Effective for annual periods beginning after December 15, 2014, private companies can now elect to amortize (straight line basis) goodwill over 10 years. Earlier, as per US GAAP, Goodwill can never be amortized. Rather it is tested for impairment annually. 2.     Intangible Assets as on 31st December 2016 Amount (US $)                      Goodwill 4,00,000                      Patent (96,000-6,000) 90,000                      Franchise (264,000-6,000) 2,58,000 Total 7,48,000

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