Question

Kingbird Golf Inc. was formed on July 1, 2019, 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 $850,000 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $650,000 and liabilities of $190,000 (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 $9,000 and a copyright on some instructional books with a fair value of $52,800. 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.

Prepare the intangible assets section of Kingbird Golf Inc. at December 31, 2019.

How much amortization expense is included in Kingbird income for the year ended December 31, 2019?

Prepare the journal entry to record amortization expense for 2020. Prepare the intangible assets section of Kingbird Golf Inc. at December 31, 2020. (No impairments are required to be recorded in 2020.) (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.)List of Accounts

At the end of 2021, Magilke is evaluating the results of the instructional business. Due to fierce competition from online and television (e.g., the Golf Channel), the Old Master reporting unit has been losing money. Its book value is now $500,000. The fair value of the Old Master reporting unit is $420,000. Magilke has collected the following information related to the company’s intangible assets.

Intangible Asset		Expected Cash Flows (undiscounted)		Fair Values
Trade names		$16,800		$5,600
Copyrights		56,000		51,000

Prepare the journal entries required, if any, to record impairments on Kingbird intangible assets. (Assume that any amortization for 2021 has been recorded.) (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

Maglike paid $850000 in cash for Old Master
Kingbird Golf Inc was formed on July 1'2019
need to prepare Intangible Assets as on 31st dec'2019
Period for calculation - 6 Months ( July - Dec '19)
Intangible Asset as on 31st Dec 2019	Amnt($)	Amnt($)
Trade Name		9,000
( fair Value )
Cost of copyright I( as below)		52,140
Goodwill ( as below)		2,40,000
Total Intangible assets		3,01,140
Cost of copyright at the date of
Purchase		52,800
( fair value)
Remaining life - 40 years
amortization of Copy right ( $52800/40/2 ( 6 Months)		-660
Cost of copyright		52,140
Goodwill
Purchase price-A		8,50,000
fair value of asset	8,00,000
fair value of Liability	-1,90,000
Fair value net assets-B		6,10,000
Goodwill derived( A-B)		2,40,000

	Debit($)	Credit($)
Amortization Expenses	1,320
copyright ($52800/40)		1,320
Full year of amortization on the copyright
No amortization on Goodwill + Trade name

Intangible Asset as on 31st Dec 2020	Amnt($)	Amnt($)
Trade Name		9,000
( fair Value )
Cost of copyright I( as below)		50,820
Goodwill ( as above)		2,40,000
Total Intangible assets		2,99,820
Cost of copyright at the date of
Purchase		52,800
( fair value)
Remaining life - 40 years
amortization of Copy right ( $52800/40)*1.5		-1,980
Cost of copyright		50,820

Journal Entry	Debit($)	Crredit($)
Loss in Impairment	91,200
Goodwill		80,000
( as derived above -$240000-as derived below -$1,60,000)
Trade Name		11,200
( $16800-$5600)
		Amnt($)
Fair value of the Old master reporting		4,20,000
carrying value		5,00,000
The goodwill is considered impaired because
the fair value of the business unit is LESS than
carrying value
In case of Copyright = No Impairment
Expected cash flow ($56,000) is greater than
Fair value ( $51000)
Fair value of the Old master reporting -A		4,20,000
Net identifiable assets ( Excluding Goodwill)
Fair value -derived goodwill value as above -B		2,60,000
$500000-$2,40,000)
Implied value of Goodwill ( A-B)		1,60,000