Bellows Bottling Purchased for $800,000 a Trademark for a Very

question 9

Essay

Bellows Bottling purchased for $800,000 a trademark for a very successful soft drink it markets under the name BLAST!. The trademark was determined to have an indefinite life. A competitor recently introduced a product that is in direct competition with the BLAST! product, thus suggesting the need for an impairment test. Data gathered by Bellows suggests that the useful life of the trademark is still indefinite, but the cash flows expected to be generated by the trademark have been reduced either to $30,000 per year (with a probability of 80%) or to $60,000 per year (with 20% probability). The appropriate risk-free interest rate is 5%. The appropriate risk-adjusted interest rate is 10%.
Prepare the appropriate journal entry (if needed) to record the effect of the events described above.

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