Exercise NO: 7

In early January 2013, Outkast Corporation applied for a trade name, incurring legal costs of $16,000. In January 2014, Outkast incurred $7,800 of leg

In early January 2013, Outkast Corporation applied for a trade name, incurring legal costs of $16,000. In January 2014, Outkast incurred $7,800 of legal fees in a successful defense of its trade name.

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Instructions

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(a) Compute 2013 amortization, 12/31/13 book value, 2014 amortization, and 12/31/14 book value if the company amortizes the trade name over 10 years.

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(b) Compute the 2014 amortization and the 12/31/14 book value, assuming that at the beginning of

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2014, Outkast determines that the trade name will provide no future benefits beyond December 31,

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2017.

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(c) Ignoring the response for part (b), compute the 2015 amortization and the 12/31/15 book value, assuming that at the beginning of 2015, 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

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$16,000 on January 3, 2015.

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