Accounting for intangible assets Mitre Company acquired Midwest Transportation C
ID: 2459847 • Letter: A
Question
Accounting for intangible assets
Mitre Company acquired Midwest Transportation Co. for $1,400,000. The fair market values of the assets acquired were as follows. No liabilities were assumed.
Equipment $510,000
Land $150,000
Building $520,000
Franchise (10-year life) $40,000
Required
a. Calculate the amount of goodwill acquired.
b. Prepare the journal entry to record the amortization of the franchise fee at the end of year 1.
Equipment $510,000
Land $150,000
Building $520,000
Franchise (10-year life) $40,000
Explanation / Answer
a. The amount of goodwill acquired = Cash paid less fair market values of assets acquired = 1,400,000 - ( 510,000 + 150,000 + 520,000 + 40,000) = $ 180,000
b. Debit amortization expense $ 4,000 Credit Franchise $ 4,000