In early January, Burger Mania acquired 100% of the common stock of the Crispy T
ID: 2417530 • Letter: I
Question
In early January, Burger Mania acquired 100% of the common stock of the Crispy Taco restaurant chain. The purchase price allocation included the following items: $8 million, patent; $6 million, trademark considered to have an indefinite useful life; and $9 million, goodwill. Burger Mania's policy is to amortize intangible assets with finite useful lives using the straight-line method, no residual value, and a five-year service life.
What is the total amount of amortization expense that would appear in Burger Mania's income statement for the first year ended December 31 related to these items? (Enter your answers in dollars, not in millions.)
Explanation / Answer
Trade mark is considered to have an indefinite useful life in the given case. Goodwill though an intangible asset normally has an indefinite usefullife is not amortised but tested annually for impairment.
Hence amortisation is applicable only to Patent with a value of $ 8 million amortised for a period of five years. The amount of amortization expense that would appear in Burger Mania's Income statement in the first year will be
$ 8 million / 5 years = $ 1.6 million