Sparky, Inc presented the following select balance sheet accounts for Plant, Property Equipment as well as Intangibles as of December 31, 20x1 Plant, Property Equipment Equipment (net of Accumulated Depreciation) $ 236,250 Intangibles Patent FJ190X (net of Accumulated Amortization) $ 252,000 The following information was reported in Sparkys 10K filing as of December 31, 20x1 The equipment was purchased for $324,000 on October 1, 20x0 It has an expected service life of eight years and no salvage value Sparky uses the Sum of Years Digits method for this class of asset The patent was acquired on January 1, 20x1 and at that time had an estimated remaining useful life of 10 years Sparky uses the straight line method for amortization of intangibles During 20x2, the following transactions and events may have affected Sparkys long lived assets July 1 Paid $72,000 in legal fees that resulted in the successful defense of the patent This event changed the estimated remaining useful life to 5 years from July 1, 20x2 Aug 1 Sparky paid $4,000,000 to acquire all of the common stock of Wild Cat, Inc , which became a division of Sparky Wild Cat reported the following balance sheet at the time of acquisition Current Assets $1,200,000 Current Liabilities $ 900,000 Plant Equip (net) 3,800,000 Long Term Debt 1,100,000 Stockholders Equity 3,000,000 On the date of the business combination, it was determined that the fair value of Wild Cat s Plant Equipment was $4,150,000 For all other balance sheet accounts, Wild Cats book value was equal to their fair value Dec 31 At year end, after recording the appropriate depreciation on the equipment, Sparky determined it was necessary to perform an impairment test due to rapid changes in demand for the one and only product this piece of equipment produces Sparky estimated the future net cash flows of the equipment to be $50,000 per year for the next three years Sparky intends to continue using the equipment and evaluates PP E using a discount rate of 15 (PV of $1, 15 , 3n is 657 and PVOA, 15 , 3n is 2 625) Using the above information, answer each of the following questions Determine Amortization Expense for all of fiscal year 20x2 for Patent FJ190X Determine the amount of Goodwill (if any) Sparky would report on their balance sheet dated December 31, 20x2 as a result of the business combination with Wild Cat Determine the amount of the Impairment Loss (if any) Sparky would report for the Equipment as of December 31, 20x2

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Posted on Aug 27, 2024

Sparky, Inc. presented the following select balance sheet accounts for Plant, Property & Equipment as well as Intangibles as of December 31, 20x1:

Plant, Property & Equipment:
Equipment (net of Accumulated Depreciation)	$ 236,250
Intangibles:
Patent FJ190X (net of Accumulated Amortization)	$ 252,000

The following information was reported in Sparkys 10K filing as of December 31, 20x1:

The equipment was purchased for $324,000 on October 1, 20x0. It has an expected service life of eight years and no salvage value. Sparky uses the Sum-of-Years-Digits method for this class of asset.
The patent was acquired on January 1, 20x1 and at that time had an estimated remaining useful life of 10 years. Sparky uses the straight-line method for amortization of intangibles.

During 20x2, the following transactions and events may have affected Sparkys long-lived assets:

July 1	Paid $72,000 in legal fees that resulted in the successful defense of the patent. This event changed the estimated remaining useful life to 5 years from July 1, 20x2.
Aug 1	Sparky paid $4,000,000 to acquire all of the common stock of Wild Cat, Inc., which became a division of Sparky. Wild Cat reported the following balance sheet at the time of acquisition: Current Assets $1,200,000 Current Liabilities $ 900,000 Plant & Equip (net) 3,800,000 Long-Term Debt 1,100,000 Stockholders Equity 3,000,000
Aug 1	*On the date of the business combination, it was determined that the fair value of Wild Cats Plant & Equipment was $4,150,000. For all other balance sheet accounts, Wild Cats book value was equal to their fair value.
Dec 31	At year-end, after recording the appropriate depreciation on the equipment, Sparky determined it was necessary to perform an impairment test due to rapid changes in demand for the one and only product this piece of equipment produces. Sparky estimated the future net cash flows of the equipment to be $50,000 per year for the next three years. Sparky intends to continue using the equipment and evaluates PP&E using a discount rate of 15%. (PV of $1, 15%, 3n is .657 and PVOA, 15%, 3n is 2.625)

Using the above information, answer each of the following questions:

Determine Amortization Expense for all of fiscal year 20x2 for Patent FJ190X:
Determine the amount of Goodwill (if any) Sparky would report on their balance sheet dated December 31, 20x2 as a result of the business combination with Wild Cat.
Determine the amount of the Impairment Loss (if any) Sparky would report for the Equipment as of December 31, 20x2: