Jan. 1 Purchased a small company and recorded goodwill of $150,000. Its useful life is indefinite.
May 1 Purchased for $90,000 a patent with an estimated useful life of 5 years and a legal life of 20 years
And the question is? If you tried to "cut and paste" it won't work here so you'll need to type the rest out.
Sra
jan 1 purchased a small company and recorded goodwill of $170,000.its useful life is indefinite.
may 1 Purchased for $90,000 a patent with an estimated useful life of 5 years and a legal life
Step 1: Goodwill Calculation
To calculate goodwill, determine the purchase price of the company and subtract the fair value of its identifiable net assets. In this case, the goodwill is recorded at $150,000.
Step 2: Patent Calculation
Next, calculate the patent value. The purchase price of the patent is $90,000, and its estimated useful life is 5 years.
Step 3: Legal Life of the Patent
While the patent's estimated useful life is 5 years, its legal life is 20 years. This means that the patent is protected by law for a period of 20 years, even though its economic benefits will only last for 5 years.
Please note that this information does not cover any depreciation or amortization calculations related to goodwill or the patent.
To calculate the annual amortization expense for goodwill and the patent, we need to determine the amortization period for each asset.
For goodwill:
Since the useful life is indefinite, it is not subject to amortization. Goodwill is not amortized but is instead tested for impairment annually or whenever there is an indication of potential impairment. The impairment test compares the fair value of the reporting unit (segment) to its carrying value, including goodwill. If the fair value is less than the carrying value, then an impairment loss is recognized.
For the patent:
The patent has an estimated useful life of 5 years, which means it will be amortized over this period. The legal life of 20 years is not relevant for determining the amortization period.
To calculate the annual amortization expense for the patent, we can use the straight-line method:
Amortization Expense = (Cost of Patent - Residual Value) / Useful Life
In this case:
Cost of Patent = $90,000
Residual Value = $0 (assuming no residual value)
Useful Life = 5 years
Amortization Expense = ($90,000 - $0) / 5 years
Amortization Expense = $18,000 per year
So, the annual amortization expense for the patent is $18,000.