Accounting for intangible assets Mitre Company acquired Midwest Transportation C

Question

Accounting for intangible assets

Mitre Company acquired Midwest Transportation Co. for $1,400,000. The fair market values of the assets acquired were as follows. No liabilities were assumed.

Equipment                                                                                                                $510,000

Land                                                                                                                           $150,000

Building                                                                                                                     $520,000

Franchise (10-year life)                                                                                          $40,000

Required

a. Calculate the amount of goodwill acquired.

b. Prepare the journal entry to record the amortization of the franchise fee at the end of year 1.

Equipment                                                                                                                $510,000

Land                                                                                                                           $150,000

Building                                                                                                                     $520,000

Franchise (10-year life)                                                                                          $40,000

Explanation / Answer

a. The amount of goodwill acquired = Cash paid less fair market values of assets acquired = 1,400,000 - ( 510,000 + 150,000 + 520,000 + 40,000) = $ 180,000

b. Debit amortization expense $ 4,000 Credit Franchise $ 4,000

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