Question

In early January 2016, Outkast Corporation applied for a trade name, incurring legal costs of $16,000. In January 2017, Outkast incurred $7,800 of legal fees in a successful defense of its trade name.

Instructions

(a)  

Compute 2016 amortization, 12/31/16 book value, 2017 amortization, and 12/31/17 book value if the company amortizes the trade name over 10 years.

(b)  

Compute the 2017 amortization and the 12/31/17 book value, assuming that at the beginning of 2017, Outkast determines that the trade name will provide no future benefits beyond December 31, 2020.

(c)  

Ignoring the response for part (b), compute the 2018 amortization and the 12/31/18 book value, assuming that at the beginning of 2018, based on new market research, Outkast determines that the fair value of the trade name is $15,000. Estimated total future cash flows from the trade name is $16,000 on January 3, 2018.

Answer 1

Part-A
Amortization on 2016 ($16000/10 Year)	$1600
Book Value on 31/12/2016 ($16000-$1600)	$14400
Amortization on 2017 ($7800+$14400)/9	$2467
Book Value on 2017 ($14400+$7800-$2467)	$19733

Part-B
Amortization on 2017 ($7800+$14400)/4	$5550
Book Value on 2017 ($14400+$7800-$5550)	$16650

Part-c, Expected Future Cash Flow are less tha n Carrying value, then impairment loss will be recorded
		Impairment Loss ( Book Value-Fair Value) (($19733-$15000)	$4733
Book Value after impairment Loss ($19733-$4733)	$15000
Amortization on 2018 ($15000/8)	$1875
Book Value on 2018 ($15000-$1875)	$13125

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