Question

In early January, Burger Mania acquired 100% of the common stock of the Crispy Taco restaurant chain. The purchase price allocation included the following items: $4 million, patent; $5 million, trademark considered to have an indefinite useful life; and $6 million, goodwill. Burger Mania's policy is to amortize intangible assets with finite useful lives using the straight-line method, no residual value, and a five-year service life. What is the total amount of amortization expense that would appear in Burger Mania's income statement for the first year ended December 31 related to these items? (Enter your answer in dollars, not in millions (i.e. 5 should be entered as 5,000,000).)

Answer 1

Answer:

$800,000 per year

Explanation:

The intangibles assets with indefinite period are tested every year for the impairment and patent is a limited life intangibles.

Therefore,

The amount of amortization of patent at the end of first year:

= Patent value ÷ Useful life

= $4 million ÷ 5 years

= $800,000 per year

Hence, the company should amortize $800,000 per year.

Answer 2

The total amount of amortization expense that would appear in Burger Mania's income statement for the first year ended December 31 related to these items is $800,000.

Based on the information given only the allocation for patent will be amortized because it is the only asset that has a limited useful life.

Using this formula

Amortization expense=Asset cost/Service life

Where:

Asset cost=$4 million

Service life= 5 years

Let plug in the formula

Amortization expense=$4 million/5 years

Amortized expense=$800,000

Inconclusion the total amount of amortization expense that would appear in Burger Mania's income statement for the first year ended December 31 related to these items is $800,000.

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