Problem 12-5 (Part Level Submission) Metlock Golf Inc. was formed on July 1, 201
ID: 2579581 • Letter: P
Question
Problem 12-5 (Part Level Submission)
Metlock Golf Inc. was formed on July 1, 2016, 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 $800,000 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $630,000 and liabilities of $190,000 (thus owners’ equity was $440,000). The fair value of Old Master’s assets is estimated to be $820,000. Included in the assets is the Old Master trade name with a fair value of $11,000 and a copyright on some instructional books with a fair value of $33,600. 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.
(a)
Problem 12-5 (Part Level Submission)
Metlock Golf Inc. was formed on July 1, 2016, 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 $800,000 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $630,000 and liabilities of $190,000 (thus owners’ equity was $440,000). The fair value of Old Master’s assets is estimated to be $820,000. Included in the assets is the Old Master trade name with a fair value of $11,000 and a copyright on some instructional books with a fair value of $33,600. 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
1. Intangible section of balance sheet:
*Goodwill measurement:
Purchase price=$800,000
Fair value of net assets ($820,000-$190,000)=$630,000
Value assigned to goodwill=$170,000
2.
Amortization expense={($33,600/40 years)×1/2 year}
=$420
Trade name $11,000 Copyright (net accumulated Depriciation of $420)(33600-420) $33,180 Goodwill $170,000 $214,180