Question

on january 11, 2016, hughes company applied for a trade name. Legal Costs associated with the application were $20,000. In Jan. 2017, the company incurred $8000 of legal fees in a successful defense of its trade name. The trade name was not impaired in 2016 and 2017.

1. Compute the endng carrying value of the trade name for 2016 and 2017.

2. should the company amortize the trade name? Under what circumstances would the trade name be amortized?

Answer 1

Answer:

1. Ending Carrying value value in 2016 = legal cost for application which is $20,000

Ending Carrying value in 2017 = legal cost of application in 2016 + legal fees incurred in 2017 = $20,00 + $8000= $28,000

2. The company should not amortize the trade as it was not impaired in 2016 and 2017.

The trade name can be amortized if it's useful life is known above which the company has determined that it will not use the trade name anymore, then it will be amortized over it's useful life.

Answer 2

1. Ending Carrying value in 2016 will equals the legal cost for application.

• Therefore, the ending carrying value in 2016 = $20,000.

Ending Carrying value in 2017 equals the legal cost of application in 2016 + legal fees incurred in 2017.

• Therefore, the Ending Carrying value in 2017 = $28,000 ($20,00 + $8,000).

2. The company should not amortize the trade as it was not impaired in Year 2016 and 2017.

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