Question

Starn Tool & Manufacturing Company, located in Meadville, PA, provides component machining for robotics, drones, vision systems, and special machines and assemblies for the aerospace, military, commercial, automotive, and medical industries. Assume the company has five different intangible assets to be accounted for and reported on the financial statements. The management is concerned about the amortization of the cost of each of these intangibles. Facts about each intangible follow:

a. Patent. The company purchased a patent for a new tool at a cash cost of $58,500 on January 1, 2020. The patent has an estimated useful life of 13 years.

b. Copyright. On January 1, 2020, the company purchased a copyright for $23,500 cash. It is estimated that the copyrighted item will have no value by the end of 10 years.

c. Franchise. The company obtained a franchise from H & H Tool Company to make and distribute a special item for the automotive industry. It obtained the franchise on January 1, 2020, at a cash cost of $14,600 for a 10-year period.

d. License. On January 1, 2019, the company secured a license from the city to operate a special service for a period of five years. Total cash expended to obtain the license was $14,200.

e. Goodwill. The company purchased another business in January 2017 for a cash lump sum of $420,000. Included in the purchase price was “Goodwill, $42,000.” Company executives stated that “the goodwill is an important long-lived asset to us.” It has an indefinite life.

Required:

1. Compute the amount of amortization that should be recorded for each intangible asset at the end of the annual accounting period, December 31, 2020.

	a. Patent b. Copyright c. Franchise d. License e. Goodwill

2. Determine the book value of each intangible asset on December 31, 2021.

	Item Book Value Dec. 31, 2021 a. Patent b. Copyright c. Franchise d. License e. Goodwill Total book value

3. Assume that on January 2, 2022, the copyrighted item was impaired in its ability to continue to produce strong revenues. The other intangible assets were not affected. Starn estimated that the copyright would be able to produce future cash flows of $17,600. The fair value of the copyright was determined to be $16,600. Compute the amount, if any, of the impairment loss to be recorded.

	Impairment loss

Answer 1

Amortization of intangible assets over their useful years only.

PARTICULARS	Amount of Amortization	Book value as on Dec 31 2021
Patent	$4,500	$49,500
Copyright	$2,350	$18,800
Franchise	$1,460	$11,680
License	$2,840	$5,680
Goodwill	$4,200	$21,000

Impairment loss of copyright year 2022= $ 2,200
I calculation of Amount of Amortization : a Patent : Amortization Amount Cost of asset Useful Econonic life 58, 500 <Given 13 years $ 4,500 b copyright : Amortization Amount cost of asset useful life $ 23,500 <Given) loyee ҮЗ $ 2,350 Scanned by TapScanner

Franchise : Amortization Amount cost of asset Useful life lo $ 14,600 <Givent » o years $ 1,460 $ dl License: Amortization Amount cost of asset useful life $ 14, 200 [rivent 5 years 11 $ 2,840 Scanned by TapScanner

Goodwill Amortization Amount cost of Goodwill years lo Accounting standards allow amortization to be conducted on straight line period basis over 10 year $ 42,000 ( 10 years $ 4,200 2 of 야 Calculation intangible Book value of each Dec 31, 2021. asset on Patent . ($) 58, 500 Purchase of asset Jan 1, 2020 Amortization for year 2020 4,500 BV 54,000 Dec 31, 2020 as on 20 21 4,500 (-) Amortization for year Scanned by TapScanner

Book value as on Dec 31, 2021 49,500 b ь Copy right 23,500 2020 Cost of asset on Jan 1, 2020 Amortization for year BV of asset Dec 31, 2020 (-) Amortization for year Book value Dec 31, 2021 2,350 21,150 as on 2021 2,350 as on 18,800 C Franchise : Cost of asset on on 1 Jan 1, 2020 (Θ - Amortization for year 2020 Bv of asset as on Dec 31, 2020 Amortization for Book value as on Dec 31, 2021 14,600 1,460 12,140 1,460 11,680 ( for year 2021 Scanned by TapScanner

d) License as on 14, 200 2,840 on 1, 360 License Jan 1, 2019 (-) Amortization for year 2019 Bu Dec 31, 2019 o Amortization Dec 31, 2020 Amortization for year 2021 Book value Dec 31, 2021 for year 20 20 2,840 as on 8,520 2,840 on 5,680 e Goodwill on 42,000 4,200 Goodwill (-) Amortization Book value (A) Jan 1, 2017 Bern 2017 Dec,31, 2017 2017 2018 37,800 Amortization for year 4,200 on on BV Dec 31, 2018 33,600 o Amortization 4,200 2019 year BV Dec 31, 2019 29.400 (-) Amortization for year 2020 4, 200 BV as Dec 31, 2020 25, 200 (-) Amortization for year 2021 4,200 Book value Dec 31, 2021 21,000 Scanned by TapScanner on ท as on

Total Book value а as on Patent Copyright franchise License Goodwill Dec 31 , 2021 $2 49,500 18, 800 I, 680 5,680 21,000 $ 106,660 3 calculation of Impairment loss of copyright Recoverability test: If future cash flow is less than carrying aset is said to be impaired from asset amount, Carrying amount = <BV as on Dec 31, 20217= $18,800 cash flows < < giveny $ 17,600 $(1,200) Future Hence Asset is smpairie Scanned by TapScanner

Fair value test : Carrying amount ($) 18,800 16,600 Fair value Loss on Impairment $2,200 • Impairment loss is the amount by which the carrying amount of the asset exceeds the fair value of the asset. Scanned by TapScanner