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P12.8 Meridan Golf and Sports was formed on July 1, 2020, when Steve Powerdriver purchased Old...

P12.8 Meridan Golf and Sports was formed on July 1, 2020, when Steve Powerdriver purchased Old Master Golf Corporation. Old Master provides video golf instruction at kiosks in shopping malls. Powerdriver's plan is to make the instruction business part of his golf equipment and accessory stores. Powerdriver paid $650,000 cash for Old Master. At the time of purchase, Old Master's statement of financial position reported assets of $550,000 and liabilities of $100,000 (shareholders' equity was $450,000). The fair value of Old Master's identifiable assets was estimated to be $700,000. Included in the identifiable assets was the Old Master trade name with a fair value of $15,000 and a copyright on some instructional books with a fair value of $25,000. The trade name had a remaining legal life of five years and can be renewed indefinitely at nominal cost. The copyright had a remaining life of 40 years.

Instructions

Assume that Meridan Golf and Sports is a private company reporting under ASPE.

a. Prepare the intangible assets and goodwill section of Meridan Golf and Sports at December 31, 2020. How much amortization expense is included in Meridan's income for the year ended December 31, 2020? Show all supporting calculations.

b. Prepare the journal entry to record the amortization expense for 2021. Prepare the intangible assets and goodwill section of Meridan Golf and Sports at December 31, 2021. (No impairment needs to be recorded in 2021.)

c. At the end of 2022, Powerdriver is evaluating the results of the instructional business. Due to fierce competition from Internet sites and television, the Old Master reporting unit has been losing money and has a carrying amount (including goodwill) of $450,000 and fair value (including goodwill) of $430,000. Powerdriver has collected the following information about the company's intangible assets:

Intangible Asset Expected Cash Flows
(Undiscounted)
Fair Value
Trade name    $11,000    $ 8,000
Copyright  30,000  25,000

Prepare the required journal entries, if any, to record impairment on Meridan's intangible assets and goodwill. (Assume that amortization for 2022 has been recorded.) Show supporting calculations.

Solutions

Expert Solution

ANSWER:

a.

Meridan Golf and Sports

INTANGIBLES and GOODWILL SECTION OF

STATEMENT OF FINANCIAL POSITION

December 31, 2020

Trade name

$ 15,000

Copyright (net of accumulated amortization of $313) (Schedule 1)

24,687

39,687

Goodwill (Schedule 2)

50,000

Schedule 1 Calculation of Copyright

Cost of copyright at date of purchase

$25,000

Amortization of Copyright for 2020

[($25,000 ÷ 40) X 1/2 year]

(313)

Book value of copyright at December 31

$24,687

Schedule 2 Goodwill Measurement

Fair value of consideration transferred

$650,000

Fair value of identifiable assets

$700,000

Fair value of identifiable liabilities

(100,000)

Fair value of net identifiable assets

600,000

Value assigned to goodwill

$50,000

Amortization expense for 2020 is $313 (see Schedule 1). There is no amortization for the goodwill or the trade name, which are considered to have indefinite lives.

b.

Amortization Expense.........................

625

AccumulatedAmortization -

Copyright ($25,000 ÷ 40)...........

625

There is a full year of amortization on the copyright. There is no amortization for the goodwill or the trade name, which are considered to have indefinite lives.

Meridan Golf and Sports

INTANGIBLES and GOODWILL SECTION OF

STATEMENT OF FINANCIAL POSITION

December 31, 2021

Trade name

$ 15,000

Copyright (net of accumulated amortization of $938)
(Schedule 1)

24,062

39,062

Goodwill

50,000

Schedule 1 Calculation of Copyright

Cost of Copyright at date of purchase

$25,000

Amortization of Copyright for 2020, 2021
[($25,000 ÷ 40) X 1.5 years]

(938)

Book value of copyright at December 31

$24,062

c.

Loss on Impairment............................................

20,000

Accumulated Impairment Losses –Goodwill ..............................................

13,000

Accumulated Impairment Losses–Trade Name....................................................

7,000

Calculations follow in Schedule 2

Schedule 2

Indefinite-life intangibles and goodwill:

Carrying amount

Recoverable Amount (higher of VIU or FV-SC)

Impairment

Trade Name

$15,000

$8,000

$7,000

Reporting Unit:

450,000

Trade Name Impairment

7,000

443,000

430,000

13,000

Limited-life intangibles:

Carrying amount

Undiscounted cash flows

Impairment

Copyright

$23,4381

$30,000

0

1[$25,000 - ($25,000 ÷40 years x 2.5 years)]


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