session 17 - intangible assets

Question 1

How does amortization work for finite life and indefinite life assets?

Answer 1

Finite life assets are amortized over useful life. Indefinite life assets are not amortized, but tested annually for impairment.

Question 2

How do you compute accounting goodwill?

Answer 2

Goodwill = Acquisition price - Fair value of all separately identifiable net assets acquired

Question 3

Why isn’t goodwill amortized?

Answer 3

Because it has an indefinite life

Question 4

How do you calculate fair value?

Answer 4

Fair value = Assets - Liabilities

OR

Fair value = Shareholders’ Equity

Question 5

Arpec Company paid $2,000,000 to purchase all of Utek Company’s assets and assumed liabilities of $400,000. The acquired assets are valued at $1,800,000. What amount of goodwill should be recorded on Arpec Company books?

Answer 5

Fair Value (Shareholders’ Equity) = 1,800,000 - 400,000 = 1,400,000
Goodwill = 2,000,000 - 1,400,000 = 600,000

Question 6

Arpec Company paid $2,000,000 to purchase all of Utek Company’s assets and assumed liabilities of $400,000. What are the journal entries for this including the amount of goodwill?

Answer 6

Dr. Goodwill (A) 600,000
Dr. Assets-Utek (A) 1,800,000
Cr. Liabilities-Utek (L) 400,000
Cr. Cash (A) 2,000,000

Question 7

At the end of 2016, the estimated fair value of the goodwill acquired in Arpec’s purchase of Utek is $400,000. If the goodwill was recorded to be $600,000, what are the journal entries?

Answer 7

Dr. Goodwill Impairment Loss (IS/SE) 200,000
Cr. Goodwill (A) 200,000

Question 8

When is goodwill recorded?

Answer 8

Only when an entire business is acquired