Question

In early January, Burger Mania acquired 100% of the common stock of the Crispy Taco restaurant chain. The purchase price allocation included the following items: $7 million, patent; $5 million, trademark considered to have an indefinite useful life; and $9 million, goodwill. Burger Mania's policy is to amortize intangible assets with finite useful lives using the straight-line method, no residual value, and a five-year service life.
Required:
What is the total amount of amortization expense that would appear in Burger Mania's income statement for the first year ended December 31 related to these items?

Answer 1

Answer:

$1,400,000 per year

Explanation:

DATA

Patent = 7 million with 5years useful life

Trademark = 5 million with an indefinite life

Goodwill = 9million

Amortization =?

Solution

Amortization of patent = Patent Value/ Useful life

Amortization of patent = $7,000,000/5

Amortization of patent = $1,400,000 per year

NOTE: Trademark and goodwill will not be amortized as they have an indefinite useful life. Both Intangible assets will be tested for impairment instead.