Question

The following information concerns the intangible assets of Epstein Corporation: a. On June 30, 2021, Epstein completed the acquisition of the Johnstone Corporation for $1,580,000 in cash. The fair value of the net identifiable assets of Johnstone was $1,350,000. b. Included in the assets purchased from Johnstone was a patent that was valued at $60,200. The remaining legal life of the patent was 12 years, but Epstein believes that the patent will only be useful for another seven years. c. Epstein acquired a franchise on October 1, 2021, by paying an initial franchise fee of $154,800. The contractual life of the franchise is 9 years Required: 1. Prepare year-end adjusting journal entries to record amortization expense on the intangibles at December 31, 2021. 2. Prepare the intangible asset section of the December 31, 2021, balance sheet.

Answer 1

1
a.	Goodwill=Acquisition price-Fair value of net identifiable assets=1580000-1350000=$ 230000
	No amortization for goodwill
b.	Cost of patent=$ 60200
	Acquired on June 30
	Hence,amortization for 6 months (July 1 to Dec 31)
	Useful life estimated by Epstien=7 years
	Amortization expense=(60200/7)*(6/12)=$ 4300
c.	Cost of franchise=$ 154800
	Acquired on Oct 1
	Hence,amortization for 3 months (Oct 1 to Dec 31)
	Contractual life=9 years
	Amortization expense=(154800/9)*(3/12)=$ 4300
	Adjusting journal entries:
	Date	Account titles and explanation					Debit	Credit
	Dec 31.	Amortization expense-Patent					4300
		Accumulated amortization-Patent						4300
		(Amortization on patent recorded)
	Dec 31.	Amortization expense-Franchise					4300
		Accumulated amortization-Franchise						4300
		(Amortization on franchise recorded)
2		Balance sheet (Partial)
							$	$
	Intangible assets:
	Goodwill							230000
	Patent						60200
	Less: Accumulated amortization-Patent						4300	55900
	Franchise						154800
	Accumulated amortization-Franchise						4300	150500
	Total							436400