On January 2, 2019, 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
2019?
A)$10,667.
B)$16,000.
C)$20,000.
D)$32,667.
E)None of these.

Question

Quizplus · Accepted Answer

Amortization of intangibles with a definite useful life is calculated using the straight-line method.

For the patent: 
Amortization deduction = Cost/Remaining life
= $140,000/7 years
= $20,000

For the covenant not to compete: 
Amortization deduction = Cost/Remaining life
= $60,000/10 years
= $6,000

The excess purchase price of $100,000 is attributed to goodwill, which is not amortized.

Therefore, the total amortization deduction for 2019 is $20,000 + $6,000 = $26,000. However, since the question asks for the amortization deduction for 2019 only, the answer would be $20,000.

On January 2, 2019, Fran Acquires a Business from Chuck