Please help! WILL RATE! Barkley Corp. obtained a trade name in January 2016, inc

Question

Please help! WILL RATE!

Barkley Corp. obtained a trade name in January 2016, incurring legal costs of $72,000. The company amortizes the trade name over 8 years. Barkley successfully defended its trade name in January 2017, incurring $19,600 in legal fees. At the beginning of 2018, based on new marketing research, Barkley determines that the fair value of the trade name is $60,000. Estimated total future cash flows from the trade name are $64,000 on January 4, 2018.

Instructions:

Prepare the necessary journal entries for the years ending December 31, 2016, 2017, and 2018. Show all computations.

Explanation / Answer

Calculation of Impairment Loss:

Carrying value = $72,000 $9,000 + $19,600 $11,800 = $70,800
Expected future net cash flows = $64,000
Fair value = $60,000

Impairment loss = Carrying value - recoverable amount

recoverable amount = Expected future net cash flows or fair value, whichever is lower
Therfore,
Carrying value = $70,800
Fair value =(60,000)
Loss on impairment = $10,800

Date Account Title and Explanation Debit Credit 12/31/2016 Amortization Expense $9,000   Trade Names ($72,000 / 8 years) $9,000 12/31/2017 Amortization Expense $11,800   Trade Names $11,800 [($72,000 $9,000 + $19,600) /7 years] 12/31/2018 Loss on Impairment $10,800 Trade Names $10,800 12/31/2018 Amortization Expense $10,000 Trade Names ($60,000 / 6 years) $10,000

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