Question

Current Attempt in Progress Kingbird Golf Inc. was formed on July 1, 2019, 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 $790,000 cash for Old Master. At the time, Old Master's balance sheet reported assets of $650,000 and liabilities of $190.000 (thus owners' equity was $460.000). The fair value of Old Master's assets is estimated to be $840,000. Included in the assets is the Old Master trade name with a fair value of $6,000 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. Prepare the intangible assets section of Kingbird Golf Inc. at December 31, 2019. KINGBIRD GOLF INC. Intangibles Section of Balance Sheet How much amortization expense is included in Kingbird income for the year ended December 31, 2019? Amortization expense $

Answer 1

Kingbird Golf Inc. Requirement 1 Balance Sheet As at 31.12.2019 Trade Names 6000 Copyrights 42660 Goodwill 140000 188660 • Computation of value of old master copyright Amortization of copyright for 2019 = $43,200/40 years*(6/12 year) = 540 Cost of copyright at Dec. 31 = Cost of copyright at date of purchase- amortization of copyright for 2019 = 43,200-540 = $42,660 • Goodwill Measurement Fair value of net assets: fair value of assets-fair value of liabilities: 840,000-190,000 = 650,000 Value assigned to goodwill: purchase price-fair value of net assets: 790,000-650,000 = 140,000 Requirement 2 Dr. 1080 Amortization expense a/c To Copyrights 1080 • Copyright s= $43,200/40 = $1080 • There is a full year of amortization on the copyright. There is no amortization for the goodwill or the trade name, which is considered an indefinite life intangible. Balance Sheet As at 31.12.2019 Trade Names Copyrights Goodwill 6000 41580 140000 187580 • Amortization of copyright for 2019, 2020: [($43,200/40)*1.5 years] = 1620 • Cost of copyright at Dec. 31= cost of copyright at date of purchase- amortization of copyright for 2019, 2020 = 43,200 - 1620 = 41,580 Requirement 3 Dr. 81700 Loss on impairment a/c To Goodwill To Trade names 80000 1700 Net identifiable assets (excluding goodwill) = 460,000-140,000 = 320,000 • Implied value of goodwill = fair value of old master reporting unit-net identifiable assets (excluding goodwill) = 380,000-320,000 = 60,000 • Goodwill = $140,000-$60,000 = 80,000 • Trade names = $6,000-$4,300 = 1,700 • The Goodwill is considered impaired because the fair value of the business unit ($380,000) is less than its carrying value ($460,000). The copyright is not considered impaired because the expected net future cash flows ($43,000) exceed the carrying amount ($43,200).