Question

Hamilton Corporation obtained a trade name in January 2017, incurring legal costs of $40,000. The company...

Hamilton Corporation obtained a trade name in January 2017, incurring legal costs of $40,000. The company amortizes the trade name over 8 years. Hamilton successfully defended the trade name in January 2018, incurring $9,800 in legal fees. At the beginning of 2019, based on new marketing research Hamed determines that recoverable amount of trade name is $33,000.

Instructions:

Prepare necessary entries for the years ended December 31, 2017, 2018, and 2019,

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Answer #1

Journal Entries

Date Account Title and Explanation Debit Credit
2017.Dec.31 Amortization Expenses - Trade Name $5,000
Trade Name ($40,000 ÷ 8) $5,000
2018 Dec.31 Amortization Expenses -Trade Name $6,400
Trade Name $6,400
($40,000 -$5,000+$9,800)÷7Years
2019.Dec.31 Loss on Impairments * $5,400
Trade Name $5,400
2019.Dec.31 Amortization Expenses -Trade Name $5,500
Trade Name ($33,000÷6) $5,500

*carrying value = $40,000 -$5,000 + $9,800 -$6,400 = $38,400

Carrying Value = $38,400

Recoverable amount = $(33,000)

Loss on Impairments = $5,400

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