Beechers Boston Barbeque Company purchased a customer list and an ongoing research project for a total of
Question:
Beecher’s Boston Barbeque Company purchased a customer list and an ongoing research project for a total of $300,000. Beecher uses the expected cash flow approach for estimating the fair value of these two intangibles. The appropriate interest rate is 8%. The potential future cash flows from the two intangibles, and their associated probabilities, are as follows:
Customer List
Outcome 1 20% probability of cash flows of $40,000 at the end of each year for five years.
Outcome 2 30% probability of cash flows of $18,000 at the end of each year for four years.
Outcome 3 50% probability of cash flows of $9,000 at the end of each year for three years.
Ongoing Research Project
Outcome 1 10% probability of cash flows of $450,000 at the end of each year for 10 years.
Outcome 2 20% probability of cash flows of $12,000 at the end of each year for four years.
Outcome 3 70% probability of cash flows of $500 at the end of each year for three years.
Instructions:
Prepare the journal entry necessary to record the purchase of the two intangibles.
Step by Step Answer:
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen