Barkley Corp. obtained a trade name in January 2009, incurring (attached file)

Barkley Corp. obtained a trade name in January 2009, incurring legal costs of $15,000. The

company amortizes the trade name over 8 years. Barkley successfully defended its trade

name in January 2010, incurring $4,900 in legal fees. At the beginning of 2011, based on new

marketing research, Barkley determines that the fair value of the trade name is $12,000.

Estimated total future cash flows from the trade name are $13,000 on January 4, 2011.

Instructions

Prepare the necessary journal entries

Recently, a group of university students decided to incorporate for the purposes of selling a

process to recycle the waste product from manufacturing cheese. Some of the initial costs

involved were legal fees and office expenses incurred in starting the business, state

incorporation fees, and stamp taxes. One student wishes to charge these costs against

revenue in the current period. Another wishes to defer these costs and amortize them in the

future. Which student is correct and why?

These costs are referred to as start-up costs, or more specifically organizational costs in this

case. Accounting for start up costs is straightforward—expense these costs as incurred.

The profession recognizes that these costs are incurred with the expectation that future

revenues will occur or increased efficiencies will result. However, to determine the amount

and timing of future benefits is so difficult that a conservative approach—expensing these

costs as incurred—is required.

Irving Music Shop gives its customers coupons redeemable for a poster plus a Dixie Chicks CD.

One coupon is issued for each dollar of sales. On the surrender of 100 coupons and $5.00 cash,

the poster and CD are given to the customer. It is estimated that 80% of the coupons will be

presented for redemption. Sales for the first period were $700,000, and the coupons redeemed

totaled 340,000. Sales for the second period were $840,000, and the coupons redeemed totaled

850,000. Irving Music Shop bought 20,000 posters at $2.00/poster and 20,000 CDs at $6.00/CD.

Instructions

Prepare the following entries for the two periods, assuming all the coupons expected to be

redeemed from the first period were redeemed by the end of the second period.