Question 2 (20 marks) Old Navy Restaurant was an established restaurant in Hong Kong. It had purchased its competitor, New Navy Restaurant $1,680,000 cash on July 1, 2018. At the time of purchase, New Navy Restaurant's statement of financial position was as follows: Assets Cash Cookery Equipment Patent Trade Name Total assets New Navy Restaurant Statement of financial position Liabilities and Equity $1,500,000 Accounts Payable $670,000 $980,000 Note Payable $450,000 $40,000 Share Capital $850,000 $40,000 Retained Earnings $590,000 $2.560,000 $2.560,000 The fair value of assets and liabilities of New Navy Restaurant are the same as its book value except the trade name with a fair value of $55,000 and a patent on some secret cooking formula with a fair value of $66,000. The trade name has a remaining life of 5 years and can be renewed at nominal cost indefinitely. The patent has a remaining life of 30 years. Old Navy Restaurant has no other intangible assets before purchasing New Navy Restaurant. Required (a) Prepare the journal entry to record for the purchase of New Navy restaurant on 1 July 2018. (4 marks) (b) Prepare the intangible assets section of Old Navy Restaurant at December 31, 2018. How much amortization expense is included in Old Navy Restaurant's income for the year ended December 31, 2018? Show all supporting computations. (4 marks) (C) On 31 December 2019, Old Navy is evaluating the results of the New Navy operation. The New Navy cash-generating unit has been losing money. Its book value is now $1,000,000. The recoverable amount of the New Navy reporting unit is $980,000. Old Navy has collected the following information related to the company's other intangible assets. Intangible Asset Value-in-Use Fair value less cost to sell Trade names $48,000 $47,000 Patent $59,000 $60,500 Prepare any necessary journal entries regarding Old Navy's intangible assets required on 31 December 2019. Show supporting computations. (6 marks) (d) On 31 December 2020, Old Navy is evaluating the results of the New Navy operation. The New Navy cash-generating unit has improved its performance. Its book value is now $950,000. The recoverable amount of the New Navy reporting unit is $960,000. Old Navy has collected the following information related to the company's other intangible assets. Intangible Asset Recoverable Amount Trade names $47,000 Patent $61,300 Prepare any necessary journal entries regarding Old Navy's intangible assets required on 31 December 2020. Show supporting computations. (6 marks)
