PCG, Ltd. is in the process of assessing the valuation of its intangible assets. At the end of the current year, management reported the following intangible assets:

The firm acquired the franchise two years ago and estimates that it has a five- year useful life with no residual value. PCG uses the straight- line depreciation method. The permit is renewable every three years, for an indefinite period of time. PCG management is concerned about the value of its franchise. The products sold under the franchise agreement have been experiencing sales declines over the past two years, prompting the company to test for impairment. It classifies the trademark and the renewable permit as indefinite- life intangible assets and must test for impairment on an annual basis. Management is unable to determine fair values from the market for the intangibles but provides the following cash flow projections related to each of its intangible assets:

The company€™s cost of capital is 5%.
Required
a. Conduct an impairment test for PCG€™s intangible assets.
b. Prepare the journal entries required to record the impairment loss, if any.
c. Compute the amount of the annual amortization for the franchise for years subsequent to the impairment test.

Description Trademark Franchise Permit Cost Accumulated amortization Net book value at year end $530,000 $180,000 0 1212000) 0 $180.000 $600,000 $318.000 Permit Future Period Year 1 Year 2 Year 3 Year 4 Year 5 Total Trademark $300.000 260,000 150,000 40,000 20,000 S770,000 Franchise $200,000 80,000 20,000 60.000 43,000 32.000 29,000 18,000 $182,000 300,000