Question

Sage Hill 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 $190,000 (thus owners’ equity was $480,000). 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 $12,000 and a copyright on some instructional books with a fair value of $24,000. 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.

A) Prepare the intangible assets section of Sage Hill Golf Inc. at December 31, 2016.

B) How much amortization expense is included in Sage Hill income for the year ended December 31, 2016?

C)

Prepare the journal entry to record amortization expense for 2017. Prepare the intangible assets section of Sage Hill Golf Inc. at December 31, 2017. (No impairments are required to be recorded in 2017.) (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.)

Answer 1

SOLUTION

(A)

Sage Hill Golf Inc.

Intangible section of Balance sheet

December 31, 2016

	Amount ($)
Trade name	12,000
Copyright (Net of accumulated amortization of $300) (Schedule 1)	23,700
Goodwill (Schedule 2)	130,000
Total Intangibles	165,700

Schedule 1- Computation of value of old master copyright-

Particulars	Amount ($)
Cost of copyright at the date of purchase	24,000
Amortization for 2016 ($24,000/40) * 1/2	300
Cost of copyright at December 31	23,700

Scehdule-2 Goodwill

	Amount ($)	Amount ($)
Purchase price		770,000
Fair value of assets
Less: Fair value of liabilities	830,000
Fair value of net assets	(190,000)	640,000
Value assigned to goodwill		130,000

(B) Amortization expense for 2016 is $300 (Schedule 1). There is no amortization for the goodwill and the trade name, both of which are considered infinite life intangible assets.

(C) Journal entry-

General accounts	Debit ($)	Credit ($)
Copyright amortization expense	600
Copyright ($24,000/40)		600
(To record amortization expense)

Sage Hill Golf Inc.

Intangible section of Balance sheet

December 31, 2017

	Amount ($)
Trade name	12,000
Copyright (Net of accumulated amortization of $900) (Schedule 1)	23,100
Goodwill	130,000
Total Intangibles	165,100

Schedule 1- Computation of value of old master copyright-

Particulars	Amount ($)
Cost of copyright at the date of purchase	24,000
Amortization for 2016 and 2017 ($24,000/40) * 1.5 years	900
Cost of copyright at December 31	23,100