Mitzi's Muffins Ltd. purchased a commercial baking system for $150,000 at the beginning of 20X1. The estimated economic life of the system is 10 years and Mitzi's uses straight-line amortization. At the beginning of 20X3, Delicious Bakeries Ltd. acquired Mitzi's in a business combination.
-At the time of acquisition, Mitzi's baking system had a fair value of $140,000. At the end of 20X3, how much amortization expense should Mitzi report?

Question

Mitzi's Muffins Ltd. purchased a commercial baking system for $150,000 at the beginning of 20X1. The estimated economic life of the system is 10 years and Mitzi's uses straight-line amortization. At the beginning of 20X3, Delicious Bakeries Ltd. acquired Mitzi's in a business combination. 
-At the time of acquisition, Mitzi's baking system had a fair value of $140,000. At the end of 20X3, how much amortization expense should Mitzi report?

Quizplus · Accepted Answer

Mitzi's Muffins Ltd. uses straight-line amortization. The original cost of the baking system is $150,000 with a 10-year life, resulting in an annual amortization expense of $15,000 ($150,000 / 10 years). The fair value at acquisition does not affect the amortization expense calculation for that year.