Question

The following information relates to the intangible assets of University Testing Services (UTS): a. On January 1, 2018, UTS completed the purchase of Heinrich Corporation for $3,510,000 in cash. The fair value of the net identifiable assets of Heinrich was $3,200,000. b. Included in the assets purchased from Heinrich was a patent valued at $82,250. The original legal life of the patent was 20 years; there are 12 years remaining, but UTS believes the patent will be useful for only seven more years. c. UTS acquired a franchise on July 1, 2018, by paying an initial franchise fee of $333,000. The contractual life of the franchise is 9 years. 1. Record amortization expense for the intangible assets at December 31, 2018. 2. Prepare the intangible asset section of the December 31, 2018, balance sheet.

Answer 1

Solution:

Question #1:

Record amortisation expense for the intangible assets at December 31, 2018.  

UTS acquired a franchise on July 1, 2012, by paying an initial franchise fee of $333,000. The contractual life of the franchise is 9 years.

Dr Amortization expense - franchise 18,500 ($333,000/9 years x 6/12)

Cr Franchise 18,500

Question #2: Prepare the intangible asset section of the December 31, 2018, balance sheet.

The balance sheet contains 3 blanks: Goodwill, patents, Franchises.

Goodwill

Excess of consideration over net identifiable assets of Heinrich: $3,510,000- $3,200,000= $310,000.

Goodwill from a business combination is not amortized but tested annually for impairment.

Patents

Patents are amortized over the shorter of the legal and useful lives.

Amortization expense = $82,250/7 years = $11,750

Book value = 82,250 - 11,750 =  70,500

Franchises

Book value = $333,000- 18,500 = $314,500

intangible asset section of the December 31, 2018, balance sheet

Goodwill                $310,000

Patents                  70,500

Franchises            314,500

Total                    $695,000