Orbit Inc.purchased Planet Co.on January 1, 2015.At that time an existing patent having a 5-year estimated life was assigned a provisional value of $10,000 and goodwill was assigned a value of $100,000.By the end of fiscal year 2015, better information was available that indicated the fair value of the patent was $20,000.How should intangible assets be reported at the beginning of fiscal year 2016??
A)?Goodwill $100,000 $\quad $Patent $10,000
B)?Goodwill $90,000 $\quad $$\quad $Patent $16,000
C)?Goodwill $84,000 $\quad $$\quad $Patent $16,000
D)?Goodwill $90,000 $\quad $$\quad $Patent $20,000

Question

Quizplus · Accepted Answer

The correct answer is B because the increase in the fair value of the patent from $10,000 to $20,000 would reduce the amount initially allocated to goodwill. The goodwill would be adjusted down by $10,000 (from $100,000 to $90,000) to reflect the increase in the patent's value. The patent's value is adjusted to $20,000, but since a year has passed and it has a 5-year estimated life, it should be amortized by 20% (1/5th), resulting in a $4,000 reduction ($20,000 - $4,000 = $16,000).

Orbit IncPurchased Planet Co \quad Patent $10,000 B)?Goodwill $90,000 \quad

Orbit IncPurchased Planet Co $\quad$ Patent $10,000
B)?Goodwill $90,000 $\quad$