Assume that Brittany acquires a competitor's assets on September 30 ^th of Year 1 for $350,000. Of that amount, $300,000 is allocated to tangible assets and $50,000 is allocated equally to two §197 intangible assets (goodwill and a one-year noncompete agreement). Given that the noncompete agreement expires on September 30 ^th of Year 2, what is Brittany's amortization deduction for the second year? (Round final answer to the nearest whole number.)

Question

Quizplus · Accepted Answer

Brittany's amortization deduction for the second year would be $3,333. This is calculated by taking the total amount allocated to the §197 intangible assets ($50,000), dividing it by the number of assets (2), to get $25,000 per asset. Since §197 intangible assets are amortized over 15 years, the annual amortization for each asset is $25,000 / 15 = $1,666.67. However, for the noncompete agreement that expires in one year, the full $25,000 would be amortized in the first year. In the second year, only the goodwill remains, so its annual amortization of $1,666.67 continues, but since it's the only asset being amortized in the second year, it's doubled to account for the full $50,000 over 15 years, leading to $3,333.34, which rounds to $3,333.

Assume That Brittany Acquires a Competitor's Assets on September 30