Question

Larkspur Golf Inc. was formed on July 1, 2016, 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 $770,000 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $670,000 and liabilities of $210,000 (thus owners’ equity was $460,000). The fair value of Old Master’s assets is estimated to be $800,000. Included in the assets is the Old Master trade name with a fair value of $12,000 and a copyright on some instructional books with a fair value of $43,200. 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. Collapse question part (a) Prepare the intangible assets section of Larkspur Golf Inc. at December 31, 2016. LARKSPUR GOLF INC. Intangibles Section of Balance Sheet $ $ How much amortization expense is included in Larkspur income for the year ended December 31, 2016? Amortization expense $

Answer 1

SOLUTION

LARKSPUR GOLF INC.

Intangibles Section of Balance Sheet

December 31, 2016

	Amount ($)
Trade name	12,000
Copyright (Schedule 1)	42,660
Goodwill (Schedule 2)	180,000
Total intangibles	234,660

Schedule 1- Computation of Value of Old Master Copyright

	Amount ($)
Cost of copyright at date of purchase	43,200
Amortization of Copyright for 2016 ($43,200/40years*1/2)	(540)
Cost of copyright at December 31	42,660

Schedule 2 - Goodwill Measurement

	Amount ($)	Amount ($)
Purchase price		770,000
Fair value of assets	800,000
Fair value of liabilities	(210,000)
Fair value of net assets		590,000
Value assigned to goodwill		180,000

Amortozation expenses for 2016 is $540 (Schedule 1). There is no amortization for the goodwill or the trademark, both of which are considered indefinite life intangible assets.