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 intangible assets section of Teal Mountain Golf Inc. at December 31, 2019.
TEAL MOUNTAIN GOLF INC. Intangibles Section of Balance Sheet choose the accounting period December 31, 2019For the Year Ended December 31, 2019For the Month Ended December 31, 2019 |
||||||
---|---|---|---|---|---|---|
Trade names | $7,000 | |||||
Copyrights |
$33,180 |
|||||
Goodwill |
$210,000 |
|||||
Total Intangible Assets |
$250,180 |
How much amortization expense is included in Teal Mountain income
for the year ended December 31, 2019?
Amortization expense |
$420 |
Journal entry to record amortization expense for 2020
Particulars | Debit (in $) | Credit (in $) |
Copyright Amortization Expense | 840 | |
To Copyright (33,600 / 40) | 840 |
For this year 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 cosidered as an indefinite life intangible
TEAL MOUNTAIN GOLF INC.
Intangibles Section of Balance Sheet
at December 31, 2020
Particulars | Amount (in $) |
Trade Name | 7,000 |
Copyright (net accumulated amortization of 1,260) (WN - 1) | 32,340 |
Goodwill | 210,000 |
Total Inangibles (WN - 2) | 249,340 |
At the end of 2021, Magilke is evaluating the results of the
instructional business. Due to fierce competition from online and
television (e.g., the Golf Channel), the Old Master reporting unit
has been losing money. Its book value is now $480,000. The fair
value of the Old Master reporting unit is $400,000. Magilke has
collected the following information related to the company’s
intangible assets.
Intangible Asset |
Expected Cash Flows |
Fair Values |
||
---|---|---|---|---|
Trade names | $12,900 | $4,300 | ||
Copyrights | 43,000 | 38,000 |
Prepare the journal entries required, if any, to record impairments
on Teal Mountain intangible assets. (Assume that any amortization
for 2021 has been recorded.) (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 0 for the
amounts.)
Account Titles and Explanation |
Debit |
Credit |
---|---|---|
enter an account title | enter a debit amount | enter a credit amount |
enter an account title | enter a debit amount | enter a credit amount |
enter an account title | enter a debit amount | enter a credit amount |
Account Titles and Explanation | Debit | Credit |
Loss on Impairment | $82,700 | |
Goodwill (210000-130000) | $ 80,000 | |
Trade Names (7000-4300) | $ 2,700 |
Account Titles and Explanation | Debit | Credit |
Loss on Impairment | $82,700 | |
Goodwill (210000-130000) | $ 80,000 | |
Trade Names (7000-4300) | $ 2,700 |
Goodwill is impaired because Old Master's Fair value is less than book Value |
Copyrights is not impaired because the Expected Cash Flows exceeds the book value |
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