Question

Teal Mountain Golf Inc. was formed on July 1, 2019, 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 $780,000 cash for Old Master. At the time, Old Masterâs balance sheet reported assets of $630,000 and liabilities of $190,000 (thus ownersâ equity was $440,000). The fair value of Old Masterâs assets is estimated to be $810,000. Included in the assets is the Old Master trade name with a fair value of $6,000 and a copyright on some instructional books with a fair value of $19,200. 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.

Required:
a. Prepare the journal entry to record amortization expense for 2020.
b. Prepare the intangible assets section of Teal Mountain Golf Inc. at December 31, 2020.

Answer 1

Answer:

Teal Mountain Golf Inc.

a. Journal Entry:

December 31, 2020:

Debit Amortization Expense $17,680

Credit Accumulated Amortization $17,680

To record the amortization expense for the year.

b. Intangible Assets Section of Teal Mountain Golf Inc. as at December 31, 2020:

Goodwill                     $160,000

less acc. amortization    16,000    $144,000

Trade Name                    6,000

less acc. amortization     1,200           4,800

Copyright                      19,200

less acc. amortization       480          18,720

Total net intangible assets          $167,520

Explanation:

a) Data and Calculations:

Amount paid for Old Master Golf Company = $780,000

Fair value of old master's assets = $810,000

Less liabilities =                                 (190,000) (620,000)

Purchased Goodwill =                                       $160,000

Intangible assets:      Amortization Period  Amortization Expense for 2020

Goodwill = $160,000      10 years                  $16,000 ($160,000/10)

Trade name $6,000        5 years                      1,200 ($6,000/5)

Copyright   $19,200      40 years                        480 ($19,200/40)

Total amortization expense for 2020 =       $17,680