Question
On January 1, 2015,LaginaCompany purchased Blankenship, Inc. by paying $2,300,000. At December 31, 2014, the balance sheet of Blankenship, Inc. was as follows: Cash $
On January 1, 2015,LaginaCompany purchased Blankenship, Inc. by paying $2,300,000. At December 31, 2014, the balance sheet of Blankenship, Inc. was as follows:
Cash | $ 150,000 | Accounts payable | $ 30,000 |
Inventory | 40,000 | Notes payable | 400,000 |
Land | 700,000 | Common Stock | 1,500,000 |
Buildings (net) | 200,000 | Retained Earnings | 20,000 |
Equipment (net) | 750,000 | ||
Franchise (net) | 100,000 | ||
Patent (net) | 10,000 | ||
Total assets | $ 1,950,000 | Total liabilities and equity | $ 1,950,000 |
All fair valuesare equal to their book values with the following exceptions:
Land fair value of $800,000
Buildings fair value of $300,000
Equipment fair value of $700,000
Franchise fair value of $200,000
Patent fairvalue of $400,000
Thefranchise expires on December 31, 2017 and thepatents have a remaininglegal life of 6 years with an estimated useful life of 4 years.
On July1, 2015,Laginapaid $20,000 to successfully defend its patent.
During 2015,Laginaincurred $800,000 of experimental and development costs to develop a new drilling methodology.In 2016, legal fees and other costs associated with registration of the related patent totaled $18,000.A patent for this technology was granted on March 31, 2016. The patent has a legal and estimated useful life of 7 years.
Due to a change in the local regulatory climate, at the end of 2015, after recording amortization,Laginadetermined it was necessary to assess impairment on the franchise. At December 31, expected future cash flows are $150,000 and estimated fair value is $130,000.
On April 1, 2016,Laginasold the patent acquired in 2015 in exchange for $300,000 cash.
At the end of 2015,Laginadetermined that there was no goodwill impairment. As part of year-end testing in 2016,Laginacollected the following information (as of December 31):
Book value of net assets (including goodwill) | $550,000 |
Estimated net future cash flows | $800,000 |
Fair value of net assets (including goodwill) | $525,000 |
Fair value of net assets (excluding goodwill) | $475,000 |
Requirements:
Compute the book valuefor each of the above mentioned intangible assets at December 31, 2015 and 2016.
Compute the income statement effects for 2015 and 2016 for each of the above mentioned transactions.
**Round all computations to the nearest whole dollar.
Note:
You may not need to use all titles provided below
All computations should be shown on the two pages that follow
Item | 2015 Book Value | 2016 Book Value |
Franchise | $ | $ |
Patent | $ | $ |
Goodwill | $ | $ |
Item | 2015 Income Statement Effect | 2016 Income Statement Effect |
Amortization Expense - Franchise | $ | $ |
Amortization Expense - Patent | $ | $ |
Amortization Expense - Goodwill | $ | $ |
Impairment Loss Franchise | $ | $ |
Impairment Loss Goodwill | $ | $ |
Research and Development Expense | $ | $ |
Legal Fees Expense | $ | $ |
Gain on Sale | $ | $ |
Loss on Sale | $ | $ |
Computations 2015
Item | Book Value | Income Statement Effect |
Franchise | ||
Patents | ||
Goodwill |
Computations 2016
Item | Book Value | Income Statement Effect |
Franchise | ||
Patents | ||
Goodwill |
|
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