On June 30 2016 Epstein completed the acquisition of the Joh

On June 30, 2016, Epstein completed the acquisition of the Johnstone Corporation for $2,300,000 in cash. The fair value of the net identifiable assets of Johnstone was $1,950,000.

Included in the assets purchased from Johnstone was a patent that was valued at $77,000. The remaining legal life of the patent was 12 years, but Epstein believes that the patent will only be useful for another seven years.

Epstein acquired a franchise on October 1, 2016, by paying an initial franchise fee of $198,000. The contractual life of the franchise is 9 years.

Prepare year-end adjusting journal entries to record amortization expense on the intangibles at December 31, 2016. (If no entry is required for a transaction/event, select \"No journal entry required\" in the first account field.)

Prepare the intangible asset section of the December 31, 2016, balance sheet. (Do not round intermediate calculations.)

Solution

Calculation of goodwill:

(The cost of goodwill is not amortized.)

Consideration exchanged                                    $2,000,000

Less: Fair value of net identifiable assets             1,700,000

                                                                               $300,000

Amortization expense ($80,000 ÷ 8 years x 6/12) 5,000

Patent 5,000

Amortization expense ($300,000 ÷ 10 years x 3/12) 7,500

Franchise 7,500

Intangible assets:

Goodwill                           $300,000

Patent 75,000           $80,000 – 5,000

Franchise                            292,500          $300,000 – 7,500

Total intangibles              $667,500