Question

Teal Mountain 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 $850,000 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $630,000 and liabilities of $190,000 (thus owners’ equity was $440,000). The fair value of Old Master’s assets is estimated to be $830,000. Included in the assets is the Old Master trade name with a fair value of $7,000 and a copyright on some instructional books with a fair value of $33,600. 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 journal entry to record amortization expense for 2020. Prepare the intangible assets section of Teal Mountain Golf Inc. at December 31, 2020. (No impairments are required to be recorded in 2020.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts.) Account Titles and Explanation Debit Credit Amortization Expense Copyrights TEAL MOUNTAIN GOLF INC. Intangibles Section of Balance Sheet

Answer 1

Teal Mountain Golf Inc. Requirement 1 Dr.' 840 Copyright Amortization Expense a/c To Copyright (33,600 = 40) 840 For this there is a full year of amortization on the copyright. However there is no amortization for the goodwill of the trade name, which is then considered an indefinite life intangible. Intangibles Section of Balance Sheet As at 31.12.2020 Trade name Copyright (net accumulated amortization of 1260) (Schedule 1) Goodwill Total intangibles 7000 32340 210000 249340 Schedule 1 The Computation of Value of Old Master Copyright Cost of Copyright at date of purchase Amortization of Copyright for 2018 and 2019 ((33,600 = 40) x 1.5 years) Cost of copyright at December 31 33600 1260 32340 Schedule 2 850000 Goodwill Measurement Purchase price Fair value of Assets 830000 Fair value of liabilities 190000 Fair value of net assets Value assigned to goodwill 640000 210000 Requirement 2 Dr. 82700 Loss on impairment a/c To Goodwill To Trade name 80000 2700 (210,000 -130,000*) (7,000 -4,300) 400000 270000 The fair value of Old Master reporting unit Net identifiable assets (excluding goodwill) ($480,000 - $210,000) Implied value of goodwill 130000 For this the Goodwill is considered to be impaired because the fair value of the business unit being ($400,000) which is less than its carrying value of ($480,000). The copyright is not considered impaired because of the expected net future cash flows being ($43,000) which exceed the carrying amount ($33,600).