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Question

Meridan Golf and Sports was formed on July 1, 2017, when Steve Powerdriver purchased Old Master Golf Corporation. Old Master provides video golf instruction at kiosks in shopping malls. Powerdriver’s plan is to make the instruction business part of his golf equipment and accessory stores.

Powerdriver paid $650,000 cash for Old Master. At the time of purchase, Old Master’s balance sheet reported assets of $550,000 and liabilities of $100,000 (shareholders’ equity was $450,000).

The fair value of Old Master’s identifiable assets was estimated to be $700,000. Included in the identifiable assets was the Old Master trade name with a fair value of $15,000 and a copyright on some instructional books with a fair value of $25,000. The trade name had a remaining legal life of five years and can be renewed indefinitely at nominal cost. The copyright had a remaining life of 40 years.

Instructions

Assume that Meridan Golf and Sports is a private company reporting under ASPE.

(a) Prepare the intangible assets section of Meridan Golf and Sports at December 31, 2017. How much amortization expense is included in Meridan’s income for the year ended December 31, 2017? Show all supporting calculations.

(b) Prepare the journal entry to record the amortization expense for 2018. Prepare the intangible assets section of Meridan Golf and Sports at December 31, 2018. (No impairment needs to be recorded in 2018.)

(c) At the end of 2019, Powerdriver is evaluating the results of the instructional business. Due to fierce competition from Internet sites and television, the Old Master reporting unit has been losing money and has a carrying amount (including goodwill) of $450,000 and fair value (including goodwill) of $430,000.

Powerdriver has collected the following information about the company’s intangible assets:

Intangible Asset	Expected Cash Flows(Undiscounted)	Fair Value
Trade name	$11,000	$ 8,000
Copyright	30,000	25,000

Prepare the required journal entries, if any, to record impairment on Meridan’s intangible assets. (Assume that amortization for 2019 has been recorded.) Show supporting calculations.

P12-9 Use the data provided in P12-8. Assume instead that Meridan Golf and Sports is a public company. The relevant information for the impairment test on December 31, 2019, is as follows:

	Carrying Amount	Future Net Cash Flows(Undiscounted)	Value in Use	FV-Selling Costs
Trade name	$ 15,000	$ 11,000	$7,000	$7,500
Copyright	23,438	30,000	27,000	24,000
Cash-generating unit to which goodwill was allocated	450,000	470,000	440,000	420,000

Instructions

Provide the calculations for the impairment test and any associated journal entry.