Question

Problem 12-5 (Part Level Submission) Splish Brothers Golf Inc. was formed on July 1, 2016, when Matt Magilke purchased the Old Master Golf Company. Old Master provides video golf instruction at kiosks in shopping malls. Magilke plans to integrate the instructional business into his golf equipment and accessory stores. Magilke paid $780,000 cash for Old Master. At the time, Old Master's balance sheet reported assets of $670,000 and liabilities of $190,000 (thus owners' equity was $480,000). The fair value of Old Master's assets is estimated to be $810,000. Included in the assets is the Old Master trade name with a fair value of $10,000 and a copyright on some instructional books with a fair value of $43,200. The trade name has a remaining life of 5 years and can be renewed at nominal cost indefinitely. The copyright has a remaining life of 40 years.

Answer 1

1) a.
SPLISH BROTHERS’S GOLF INC.
Intangibles Section of Balance Sheet
December 31, 2016
Trade name	10000
Copyright (net accumulated amortization of $540)(Schedule 1)	42660
Goodwill (Schedule 2)	160000
Total intangibles	212660
b.
Amortization Expense for 2016	540
There is no amor­tization for the goodwill or the trade name, both of which are considered indefinite life intangible assets.
Schedule 1 Computation of Value of Old Master Copyright
Cost of copyright at date of purchase	43200
Amortization of Copyright for 2016 [($43,200 ÷ 40) X 1/2 year]	-540
Cost of copyright at December 31	42660
Schedule 2 Goodwill Measurement
Purchase price		780000
Fair value of assets	810000
Fair value of liabilities	-190000
Fair value of net assets		620000
Value assigned to goodwill		160000
2)
Journal Entry
Account Titles and Explanation	Debit	Credit
Copyright Amortization Expense	1080
Copyright ($43,200/40)		1080
b)
SPLISH BROTHERS’S GOLF INC.
Intangibles Section of Balance Sheet
December 31, 2017
Trade name	10000
Copyright (net accumulated amortization of $1620)(Schedule 1)	41580
Goodwill (Schedule 2)	160000
Total intangibles	211580
b.
Amortization Expense for 2017	1620
There is no amor­tization for the goodwill or the trade name, both of which are considered indefinite life intangible assets.
Schedule 1 Computation of Value of Old Master Copyright
Cost of copyright at date of purchase	43200
Amortization of Copyright for 2016 [($43,200 ÷ 40) X 1.5 year]	-1620
Cost of copyright at December 31	41580