In early January 2007, Outkast Corporation applied for a trade name, incurring legal costs of $16,000. In January of 2008, Outkast incurred $7,800 of legal fees in a successful defense of its trade name.

Instructions

(a) Compute 2007 amortization, book value as of December 31, 2007, 2008 amortization, and book value as of December 31, 2008, if the company amortizes the trade name over 10 years.

(b) Compute the 2008 amortization and the December 31, 2008, book value, assuming that at the beginning of 2008, Outkast determines that the trade name will provide no future benefits beyond December 31, 2011.

(c) Ignoring the response for part (b), compute the 2009 amortization and the December 31, 2009 book value, assuming that at the beginning of 2009, 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 $16,000 on January 3, 2009.