In early January 2020, FJS Corporation applied for and received approval for a trade name, incurring legal costs of $52,500. In early January 2021, FJS incurred $28,200 in legal fees in a successful defence of its trade name.

Instructions

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 2020; carrying amount at December 31, 2020; amortization for 2021; and carrying amount at December 31, 2021, if the company amortizes the trade name over its 15-year legal life. Round amortization calculations to the nearest dollar.

c. Repeat part (b), assuming a useful life of six years.

d. Assume the trade name is assessed as having an indefinite life upon initial acquisition. Explain the accounting implications.

e. Digging Deeper Assume the role of a potential investor in FJS. Comment on the estimated useful life of the trade name, and its effects on the company’s financial statements.