Montana Matt’s Golf Inc. was formed on July 1, 2013, when Matt Magilke purchased
ID: 2484887 • Letter: M
Question
Montana Matt’s Golf Inc. was formed on July 1, 2013, 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 $762,200 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $654,600 and liabilities of $201,000 (thus owners’ equity was $453,600). The fair value of Old Master’s assets is estimated to be $814,400. Included in the assets is the Old Master trade name with a fair value of $10,700 and a copyright on some instructional books with a fair value of $39,600. 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.
MONTANA MATT’S GOLF INC.
Intangibles Section of Balance Sheet
December 31, 2013
SHOW LIST OF ACCOUNTS
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Account Titles and Explanation
Debit
Credit
MONTANA MATT’S GOLF INC.
Intangibles Section of Balance Sheet
December 31, 2014
SHOW LIST OF ACCOUNTS
LINK TO TEXT
LINK TO TEXT
LINK TO TEXT
Intangible Asset
Expected Cash Flows
(undiscounted)
Fair Values
Account Titles and Explanation
Debit
Credit
Montana Matt’s Golf Inc. was formed on July 1, 2013, 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 $762,200 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $654,600 and liabilities of $201,000 (thus owners’ equity was $453,600). The fair value of Old Master’s assets is estimated to be $814,400. Included in the assets is the Old Master trade name with a fair value of $10,700 and a copyright on some instructional books with a fair value of $39,600. 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.
Explanation / Answer
Montana Matt's Golf inc. Intangible Section of Balance Sheet Dec 31, 2013 Intangible Assets Trade Name 10,700 Copyright (39600 - 495) 39,105 Goodwill 148,800 Total Intangible Assets 198,605 Computation of Value of Amortization of Copyright Amortzation per Annum = 39600 / 40 Years = $990 per Year Amortzation in the Year 2013 = $990 X 6/12 = $495 Calculation of Amt. of Goodwill Purchase Price 762,200 Fair Value of Assets 814,400 Fair Value of Liabilities 201,000 Fair Value of Net Assets 613,400 Goodwill 148,800 Amortization Expenses $495 There is no amortization for the goodwill or the trade name, both of which are considered indefinite life intangible assets. Answer b. Journal Entry Particulars Amt. Dr. Amt. Cr. Amortization Exp. - Copyright Dr. 990 To Copyright (39600 / 40 Years) 990 There is no amortization for the goodwill or the trade name, both of which are considered indefinite life intangible assets. Montana Matt's Golf inc. Intangible Section of Balance Sheet Dec 31, 2014 Intangible Assets Trade Name 10,700 Copyright (39600 - 1485) 38,115 Goodwill 148,800 Total Intangible Assets 197,615 Answer c. Fair Value of Old Master Reporting Units 424500 Net Identifiable Assets (excluding Goodwill) (501700 - 148800) 352900 Implied Value of goodwill 71600 The Goodwill is considered impaired because the fair value of the business unit ($424,500) is less than its carrying value ($501,700). The copyright is not considered impaired because the expected net future cash flows ($46220) exceed the carrying amount ($38115). Journal Entry Particulars Amt. Dr. Amt. Cr. Loss on Impairment Dr. 84060 To Goodwill (148800 - 71600) 77200 To Trade Name (10700 - 3840) 6860