On January 1, 2017, Sunland Company had a balance of $351,500 of goodwill on its balance sheet that resulted from the purchase o
f a small business in a prior year. The goodwill had an indefinite life. During 2017, the company had the following additional transactions.Jan. 2 Purchased a patent (7-year life) $316,050.July 1 Acquired a 10-year franchise; expiration date July 1, 2027, $619,200.Sept. 1 Research and development costs $188,000.(a)Prepare the necessary entries to record the transactions related to intangibles. All costs incurred were for cash. (Record entries in the order displayed in the problem statement. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)(b)Make an entry as of December 31, 2017, recording any necessary amortization. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)(c)Indicate what the intangible asset account balances should be on December 31, 2017.
1 answer:
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<u>Solution and Explanation:</u>
Answer 1 The Net present value = the Present value of all the cash inflows minus the present value of all the cash outflows
= $171428.57
Answer a-2) yes, definitely the business should be started as the net present value is positive.
Answer b) Break even growth rate = the required rate – Cash flows / investment
= 3.37 percent.