Dynamo Manufacturing paid cash to acquire the assets of an existing company. Among the assets acquired were the following items:

Dynamo Manufacturing paid cash to acquire the assets of an existing company. Among the assets acquired were the following items:

Patent with 4 remaining years of legal life	$38,900
Goodwill	40,000

Dynamo’s financial condition just prior to the acquisition of these assets is shown in the following statements model:

Assets

=

Liab.

+

Equity

Rev.

–

Exp.

=

Net Inc.

Cash Flow

Cash

+

Patent

+

Goodwill

90,600

+

NA

+

NA

=

NA

+

90,600

NA

–

NA

=

NA

NA

Required:

a.	Compute the annual amortization expense for these items.

b. Record the acquisition of the intangible assets and the related amortization expense for year 1 in a horizontal statements model like the one shown above.

 

Prepare the journal entries to record the acquisition of the intangible assets and the related amortization for year 1.

 

Explanation:

a.

Patent $38,900 ÷ 4 = $9,725 per year

The goodwill is not amortized under GAAP.
Thanks

Golden Manufacturing Company started operations by acquiring $91,000 cash from the issue of common stock. On January 1, 2016, the company purchased equipment that cost $91,000 cash, had an expected useful life of six years, and had an estimated salvage value of $18,200.

Golden Manufacturing Company started operations by acquiring $91,000 cash from the issue of common stock. On January 1, 2016, the company purchased equipment that cost $91,000 cash, had an expected useful life of six years, and had an estimated salvage value of $18,200. Golden Manufacturing earned $93,390 and $63,610 of cash revenue during 2016 and 2017, respectively. Golden Manufacturing uses double-declining-balance depreciation.


Required:

Prepare income statements, balance sheets, and statements of cash flows for 2016 and 2017. Use a vertical statements format. (Hint: Record the events in T-accounts prior to preparing the statements.)

Explanation:

Depreciation calculation: (Cost – Accumulated depr.) × (2 × SL Rate) SL Rate = 1 ÷ 6 = 0.16667

Year 1 ($91,000 – $0) × (2 × 0.16667) = $30,333*

Year 2 ($91,000 – $30,333) × (2 × 0.16667) = $20,222*

*Rounded

Cash

2016
	91,000			91,000
	93,390
Bal.	93,390
2017
	63,610
Bal.	157,000

Equipment

2016
	91,000
Bal.	91,000

Accumulated Depr.

2016
				30,333
			Bal.	30,333
2017
				20,222
			Bal.	50,555

Common Stock

2016				91,000
			Bal.	91,000

Retained Earnings

2016
cl	30,333		cl	93,390
			Bal.	63,057
2017
cl	20,222			63,610
			Bal.	106,445

Sales Revenue

2016
cl	93,390			93,390
			Bal.	0
2017
cl	63,610			63,610
			Bal.	0

Depreciation Expense

2016
	30,333		cl.	30,333
Bal.	0
2017
	20,222		cl.	20,222
Bal.	0

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