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24 October, 14:06

The following information relates to the intangible assets of University Testing Services (UTS) : a. On January 1, 2018, UTS completed the purchase of Heinrich Corporation for $3,510,000 in cash. The fair value of the net identifiable assets of Heinrich was $3,200,000. b. Included in the assets purchased from Heinrich was a patent valued at $82,250. The original legal life of the patent was 20 years; there are 12 years remaining, but UTS believes the patent will be useful for only seven more years. c. UTS acquired a franchise on July 1, 2018, by paying an initial franchise fee of $333,000. The contractual life of the franchise is 9 years. 1. Record amortization expense for the intangible assets at December 31, 2018. 2. Prepare the intangible asset section of the December 31, 2018, balance sheet.

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  1. 24 October, 17:03
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    Solution:

    Question #1:

    Record amortisation expense for the intangible assets at December 31, 2018.

    UTS acquired a franchise on July 1, 2012, by paying an initial franchise fee of $333,000. The contractual life of the franchise is 9 years.

    Dr Amortization expense - franchise 18,500 ($333,000/9 years x 6/12)

    Cr Franchise 18,500

    Question #2: Prepare the intangible asset section of the December 31, 2018, balance sheet.

    The balance sheet contains 3 blanks: Goodwill, patents, Franchises.

    Goodwill

    Excess of consideration over net identifiable assets of Heinrich: $3,510,000 - $3,200,000 = $310,000.

    Goodwill from a business combination is not amortized but tested annually for impairment.

    Patents

    Patents are amortized over the shorter of the legal and useful lives.

    Amortization expense = $82,250/7 years = $11,750

    Book value = 82,250 - 11,750 = 70,500

    Franchises

    Book value = $333,000 - 18,500 = $314,500

    intangible asset section of the December 31, 2018, balance sheet

    Goodwill $310,000

    Patents 70,500

    Franchises 314,500

    Total $695,000
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