Assume that Bethany acquires a competitor's assets on March 31st. The purchase price was $150,000. Of that amount, $125,000 is allocated to tangible assets and $25,000 is allocated to goodwill (a §197 intangible asset). What is Bethany's amortization expense for the current year? (Round final answer to the nearest whole number)
A) $1,250
B) $0
C) $1,389
D) $1,319
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

Goodwill is a §197 intangible asset that is amortized over 15 years. Therefore, the annual amortization expense for goodwill is $1,667 ($25,000 ÷ 15). However, since the acquisition occurred on March 31st, Bethany will only have to amortize the goodwill for 9 months in the current year. The amortization expense for the current year would be $1,389 ($1,667 × 9/12). The $125,000 allocated to tangible assets will not be amortized because they are depreciable assets.

Assume That Bethany Acquires a Competitor's Assets on March 31st