Question

The following information concerns the intangible assets of Epstein Corporation:

On June 30, 2018, Epstein completed the acquisition of the Johnstone Corporation for $2,540,000 in cash. The fair value of the net identifiable assets of Johnstone was $2,150,000.

Included in the assets purchased from Johnstone was a patent that was valued at $94,400. The remaining legal life of the patent was 13 years, but Epstein believes that the patent will only be useful for another eight years.

Epstein acquired a franchise on October 1, 2018, by paying an initial franchise fee of $236,000. The contractual life of the franchise is 10 years.

Required:

1. Prepare year-end adjusting journal entries to record amortization expense on the intangibles at December 31, 2018.
2. Prepare the intangible asset section of the December 31, 2018, balance sheet.

Answer 1

1
To record amortization of goodwill
No journal entry required
To record amortization of patent
Amortization expense	5900		=94400/8*6/12
Patent		5900
To record amortization of franchise.
Amortization expense	5900		=236000/10*3/12
Franchise		5900
2
Balance Sheet
December 31, 2018
Intangible assets:
Goodwill	390000		=2540000-2150000
Patent	88500		=94400-5900
Franchise	230100		=236000-5900
Total intangibles	708600