On January 2,2013,Fran acquires a business from Chuck.Among the assets purchased are the following intangibles: patent with a 7-year remaining life,a covenant not to compete for 10 years,and goodwill. Of the purchase price,$140,000 was paid for the patent and $60,000 for the covenant.The amount of the excess of the purchase price over the identifiable assets was $100,000.What is the amount of the amortization deduction for 2013?
A)$10,667.
B)$16,000.
C)$20,000.
D)$32,667.
E)None of the above.

Question

Quizplus · Accepted Answer

Goodwill is not amortized but is tested for impairment annually. Therefore, we only need to consider the amortization of the patent and covenant not to compete.

The amortization for the patent is $140,000/7 years = $20,000 per year.

The amortization for the covenant not to compete is $60,000/10 years = $6,000 per year.

Therefore, the total amortization deduction for 2013 is $20,000 + $6,000 = $26,000. However, we need to subtract the amount of excess purchase price over identifiable assets, which is $100,000/15 years (the remaining useful life of all intangible assets) = $6,667.

So the final amortization deduction for 2013 is $26,000 - $6,667 = $20,333, which rounds to $20,000.

On January 2,2013,Fran Acquires a Business from Chuck