Question

In: Accounting

In early January 2019, Riverbed Corporation applied for a trade name, incurring legal costs of $17,000....

In early January 2019, Riverbed Corporation applied for a trade name, incurring legal costs of $17,000. In January 2020, Riverbed incurred $8,100 of legal fees in a successful defense of its trade name.

a. Compute 2019 amortization, 12/31/19 book value, 2020 amortization, and 12/31/20 book value if the company amortizes the trade name over 10 years.

2019 amortization		$
12/31/19 book value		$
2020 amortization		$
12/31/20 book value		$

b) Compute the 2020 amortization and the 12/31/20 book value, assuming that at the beginning of 2020, Riverbed determines that the trade name will provide no future benefits beyond December 31, 2023.

2020 amortization		$
12/31/20 book value		$

C) Ignoring the response for part (b), compute the 2021 amortization and the 12/31/21 book value, assuming that at the beginning of 2021, based on new market research, Riverbed determines that the fair value of the trade name is $15,440. Estimated total future cash flows from the trade name is $16,640 on January 3, 2021.

2021 amortization		$
12/31/21 book value		$

Expert Solution

Answer:

a)

2019 amortization = $17,000 / 10

= $1,700

12/31/19 book value = $17,000 - $1,700

= $15,300

2020 amortization = ($15,300 + $8,100) / 9

= $2,600

12/31/20 book value = ($17,000 + $8,100) - $1,700 - $2,600

= $20,800

b)

2020 Amortization = ($ 15,300 + $ 8,100) / 4

= $ 5,850
12-31-20 Book Value = $ 15,300 + $ 8,100 - $ 5,850

= $ 17550

c)

Fair Value of Trade Name atthe Beginning of 2021 is $ 15,440

Estimated total future cash flows from the trade name is $ 16,640

Book Value of trade name at the beginning of 2021 = $ 20,800

Carrying Amount of trade name = $ 20,800

Since the carrying amount is greater than the estimated total future cash flows from the trade name

(20,800 > $ 16,640), the trade name fails the recoverability test.

Also Since the Fair Market Value is provided, the new carrying value is the lower of Market Value or Book Value.

So, the carrying value of fair trade for 2021 is $ 15,440.

Assuming impairment loss, the amortization for 2021 = $ 15,440 / 8 years

Thus, Amortization for 2021 = $ 1930

12/31/21 Book Value = $ 15,440 - $ 1930 = $13510

Thus, Book Value of trade name of December 31, 2021 = $ 13510.

ekkarill92 answered 3 months ago

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