A B C D E F G H J K L M N Burr Oak Inc. was formed on July 1, 2019 when Walt Bernard purchased the Big Rock Motorbike company. Big Rock IOUT A W N Motorbike organizes and provides motorbike tours along U.S. coastal areas. Bernard paid $450,000 cash for Big Rock Motorbike. At the time, Big Rock's balance sheet reported assets of $470,000 and liabilities of $300,000 (thus stockholders equity was $170,000). The fair value of Big Rock's assets is estimated to be $540,000. Included in the assets is the Big Rock Motorbike trade name with a fair value of $70,000 and a copyright on some tour books with a fair Co value of $40,000. The trade name has a remaining life of 10 years and can be renewed at nominal cost indefinitely. The copyright has a remaining life of 20 years. 10 11 12 Instructions 13 (a) 14 Prepare the intangible assets section of Burr Oak Inc. at December 31, 2019. How much amortization expense is 15 included in Burr Oak Inc.'s income for the year ended December 31, 2019? 16 17 Schedule 1- Computation of Value of Freedom Rock Bicycles Copyright 18 Cost of Copyright at date of purchase $ 40,000 19 Less Amortization of Copyright for 2019* 20 Carrying Value of Copyright on December 31, 2019 $ 10,000 21 Amortization = $40,000 / 20 years x 6/12 year = $1000 22 23 chedule 2 - Goodwill Measurement 24 Purchase price 150,000 25 Fair value of assets 26 Less Fair value of liabilities 27 Fair value of net assets 28 Value Assiged to Goodwill $ 450,000 29 30 chedule 3 - Computation of Value of Trade Name 31 Purchase price $ 70,000 32 Amortization of trade name for 2019* 33 Carrying Value of Trade Name on December 31, 2019 $ 70,000 34 * No amortization for trade name since it is considered an indefinite life intangible 35 36 37 BURR OAK INC 38 Intangibles Section of Balance Sheet 39 13830 40 Tradename 70,000 41 Copyright 40,000 42 Goodwill 450,000 43 44 Total Intangibles $ 560,000 45B C D E F G H J K L N 0 P Q R S T U 45 46 ( b ) 47 Prepare the journal entry to record amortization expense for 2020. Prepare the intangible assets 48 section of Burr Oak Inc. at December 31, 2020. (No impairments are required to be recorded in 2020.) 49 Debit Credit 50 51 52 * Amortization = $40,000/ 20 years = $2,000 53 At the end of 2020, Bernard is evaluating the results of the tour business. Due to fierce competition from other online businesses, the Big Rock reporting unit has been losing money. Its book value is now $225,000. The fair value of the Big Rock reporting unit is $150,000. Bernard has collected the following information related to the company's intangible assets intangible assets: Expected Cash Flows Intangible Asset (Undiscounted Fair Values Trademark S 0,000 $ 16,000 Copyrights 26,000 $ 14,000 Calculate impairment loss, if any, for each of the intangible assets. Trade name Calculate the impairment loss: Carrying value asset 70,000 Loss on Impairment 72 s there an impairment? 73 *No amortization for trade name since it is considered an indefinite life intangible 74 75 76 Copyright 77 Purchase Price S 40,000 78 79 80 81 Result $ 82 s there an impairment? 83 Calculate the impairment loss: Carrying value asset Fair value of asset Loss on Impairment 87 *Amortization = $40,000 / 20 years x 1.5 years = $3,000 88 Goodwill Carrying value of goodwill 225000 Fair value of business unit 150000 Result 75000 94 s there an impairment?94 Is there an impairment? 95 96 97 (d) Prepare the journal entries required, if any, to record impairments on Burr Oak Inc.'s intangible 98 assets. 99 100 Debit Credit 101 102 103 104 105 106 107 108 109 110
