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8 August, 03:19

The following information concerns the intangible assets of Epstein Corporation:

a. On June 30, 2021, Epstein completed the acquisition of the Johnstone Corporation for $1,580,000 in cash. The fair value of the net identifiable assets of Johnstone was $1,350,000.

b. Included in the assets purchased from Johnstone was a patent that was valued at $60,200. The remaining legal life of the patent was 12 years, but Epstein believes that the patent will only be useful for another seven years.

c. Epstein acquired a franchise on October 1, 2021, by paying an initial franchise fee of $154,800. The contractual life of the franchise is 9 years

Required:

1. Prepare year-end adjusting journal entries to record amortization expense on the intangibles at December 31, 2021.

2. Prepare the intangible asset section of the December 31, 2021, balance sheet.

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Answers (1)
  1. 8 August, 03:45
    0
    1)

    To record amortization of goodwill

    Calculation of goodwill:

    Consideration exchanged 1,580,000

    Less: Fair value of net identifiable assets 1,350,000

    Goodwill acquired 230,000

    The cost of goodwill is not amortized.

    For Patent Ammortization = 60,200/7 = 8600 / 2 = 4300

    For Franchise Ammortization = 154,800/9 = 17200 / 12 = 1433.33 * 3 = 4300

    Account Title Dr Cr

    Amortization expense 4300

    Patent 4300

    Amortization expense 4300

    Franchise 4300

    2)

    Patent = $60,200 - 4,300 = $55,900

    Franchise = $154,800 - 4,300 = $150,500

    Balance Sheet

    December 31, 2021

    Intangible assets:

    Goodwill 230,000

    Patent 55,900

    Franchise 150,500

    Total intangibles 436,400
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