In early January 2014, Kara Corporation applied for and received approval for a trade name, incurring legal costs of $45,000. In January 2 015, Kara incurred $24,300 of legal fees in a successful defence of its trade name.
(a) Management determines that this asset has a limited useful life. Identify the variables that must be considered in determining the appropriate amortization period for this trade name.
(b) Calculate amortization for 2014; carrying amount at December 31, 2014; amortization for 2015; and carrying amount at December 31, 2015, if the company amortizes the trade name over its 15-year legal life.
(c) Repeat part (b), assuming a useful life of five years.
(d) Assume the trade name is assessed as having an indefinite life upon initial acquisition. Explain the accounting implications.
(e) Assume the role of a potential investor in Kara. Comment on the estimated useful life of the trade name, and its effects on the company's financial statements.