Question

Wember Company acquired a subsidiary company on December 31, 2015, and recorded the cost of the intangible assets it acquired as follows:

Patent $100,000

Trade name 80,000

Goodwill 150,000

The patent is being amortized by the straight-line method over an expected life of 10 years with no residual value. Amortization has been recorded for the current year. The trade name was considered to have an indefinite life. Because of the success of the subsidiary in the past, Wember has not previously considered any of the intangible assets to be impaired. However, in 2019, because of a current recession and technological changes in the subsidiary’s industry, Wember decides to review all of its intangible assets for impairment and record any adjustments at December 31, 2019. Wember estimates that the fair value of the patent is $42,000. The company estimates the fair value of the trade name to be $90,000 but decides that it now has a limited life of 5 years. The subsidiary company, which qualifies as a reporting unit, has a book value of $700,000, including the goodwill of $150,000. Wember estimates that the fair value of the subsidiary company is $650,000, of which it allocates 80% to the identifiable assets and liabilities.

Required: 1. Prepare journal entries for Wember to record the impairment of its intangible assets at December 31, 2019. 2. Prepare journal entries for Wember to record the amortization expense for its intangibles at December 31, 2020.

Answer 1

- Answers .O hember decides to greview all of its integbe ble assets for impairment and record any adjustment at december 31, Book, value of intangible assets as on december 31 2019 Patent: $60000 $100000 - C$100000 x 4 years | 10 years)] Torade name: 80000 Goodwill : 150000 + taid value of patent is $42000 estimated by ember 60000 - 42000 Timpauiment i 18000 charges on patat . To patent Afc cr. 18000 The company estimates the fair value of trade $90000 limit life of years. There is no impairment charges on trade name because trade name is greater than book value of trade name -

The subsidiary Company is qualities as Stepeling cumit it's book value - $700000 good will - $ 150000 Now, Other assets are = $ 700000-$150000 - $550000 wember estimates the subsidary Compirny. is, $650000 ob which it allocates 80% to the identifiable assets & laibilities. ? 650000 x 80-12 =$520000 identifiable assets & lovibilities. - $520000 - Goodwill - 650000 m - 520000 i = 130000

2mpaiorment changes on goodwill $ 150000 – 130000 $ 20000 To good will Alc cr. 20000 (Q). Amortisation Expense on patentis 42000 - 7000 To patent Ak cr. 7000 Amortisation Expense on trade name Alc ox: $130000 1 - 26000 To trade name ALC Cr. $46000