Question

Problem 3. (100 Points) Larkspur 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 $770,000 cash for Old Master. At the time, Old Master's balance sheet reported assets of $670,000 and liabilities of $210,000. 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 $12,000 and a copyright on some instructional books with a fair value of $43,200. 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. Part A. Prepare the intangible asset section of Larkspur Golf's balance sheet at 12/31/2019 Part B. How much amortization expense is included in Larkspur Golf's income for 2019? Part C. Prepare the journal entry to record amortization expense for 2020. At the end of 2021, Magilke is evaluating the results of the instructional business. Due to fierce competition, the Old Master reporting unit has been losing money. Its book value is now $410,000. The fair value of the Old Master unit is $330,000. Magilke has collected the following information related to the company's intangible assets Asset Expected (Undiscounted) Cash Flows Fair Values Trade Names 13,800 4,600 Copyrights 46,000 41,000 Part D. Prepare any necessary journal entries to record intangible asset impairments on 12/31/2021.

Answer 1

ANSWER

Purchase price		770,000
Fair value of assets	800,000
Less: Fair value of liabilities	210,000
Fair value of net assets		590,000
Goodwill		180,000
A
Intangibles Section of Balance Sheet
December 31, 2019
Goodwill	180,000
Copyrights	42660	=43200-540
Trade Names	12000
Total Intangible Assets	234,660
B
Amortization expense	540	=43200/40*6/12

C JOURNAL ENTRY
Amortization expense	1080
Copyrights(43200/40)		1080

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Answer 2

Part C 

Good will                        180000

Tradename                     12000

Copyrights                        41580

Total Intangible assets    233580

Part D

                                    Debit         Credit

loss on impairment     87400

Goodwill                                       80000

Tradename                                   7400