Barkley Corp. obtained a trade name in January 2009, incurring legal costs of $1

Question

Barkley Corp. obtained a trade name in January 2009, incurring legal costs of $15,000. The company amortizes the trade name over 8 years. Barkley successfully defended its trade name in January 2010, incurring $4,900 in legal fees. At the beginning of 2011, based on new marketing research, Barkley determines that the fair value of the trade name is $12,000. Estimated total future cash flows from the trade name are $13,000 on January 4, 2011. Instructions: Prepare the necessary journal entries for the years ending December 31, 2009, 2010, and 2011. Show all computations.

Explanation / Answer

Dec. 31, 2009
Amortization Expense - Trade Name 1,875 (dr.)
Trade Name 1,875 (cr.)
($15,000 ÷ 8 years)

Dec. 31, 2010
Amortization Expense – Trade Name 2,575 (dr.)
Trade Name 2,575 (cr.)
[($15,000 - $1,875 + $4,900) ÷ 7 years]

Dec. 31, 2011
Loss on Impairment 3,450 (dr.)
Trade Name 3,450 (cr.)

Carrying value = $15,000 - $1,875 + $4,900 - $2,575 = $15,450
Total future cash flows = 13,000
Therefore, an impairment loss has occurred

Carrying value = $15,450
Fair value = (12,000)
Loss on impairment = $ 3,450

Dec. 31, 2011
Amortization Expense – Trade Name 2,000 (dr.)
Trade Name 2,000 (cr.)
($12,000 ÷ 6 years)

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