On June 30, 2016, Epstein completed the acquisition of the Johnstone Corporation

Question

On June 30, 2016, Epstein completed the acquisition of the Johnstone Corporation for $2,300,000 in cash. The fair value of the net identifiable assets of Johnstone was $1,950,000.

Included in the assets purchased from Johnstone was a patent that was valued at $77,000. The remaining legal life of the patent was 12 years, but Epstein believes that the patent will only be useful for another seven years.

Epstein acquired a franchise on October 1, 2016, by paying an initial franchise fee of $198,000. The contractual life of the franchise is 9 years.

Prepare year-end adjusting journal entries to record amortization expense on the intangibles at December 31, 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Prepare the intangible asset section of the December 31, 2016, balance sheet. (Do not round intermediate calculations.)

Explanation / Answer

Calculation of goodwill:

(The cost of goodwill is not amortized.)

Consideration exchanged                                    $2,000,000

Less: Fair value of net identifiable assets             1,700,000

                                                                               $300,000

Amortization expense ($80,000 ÷ 8 years x 6/12) 5,000

Patent 5,000

Amortization expense ($300,000 ÷ 10 years x 3/12) 7,500

Franchise 7,500

Intangible assets:

Goodwill                           $300,000

Patent 75,000           $80,000 – 5,000

Franchise                            292,500          $300,000 – 7,500

Total intangibles              $667,500

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