On January 1, 2020, Don Buchanan acquires a business that has goodwill. The amount of the purchase price that is allocated to goodwill is $60,000. The business has a taxation year that ends on December 31 and, for 2020, Don takes the maximum CCA deduction. On January 1, 2021, the business is sold. It is estimated that $82,000 of the sale price was for the goodwill. The resulting increase in Don's 2021 Net Income For Tax Purposes is:

Question

Quizplus · Accepted Answer

The maximum CCA deduction for goodwill is 7% of the undepreciated capital cost (UCC). The UCC on January 1, 2020 is $60,000. The CCA deduction for 2020 is $4,200 (7% x $60,000). The UCC on January 1, 2021 is $55,800 ($60,000 - $4,200). The proceeds of disposition of the goodwill are $82,000. The taxable capital gain is $26,200 ($82,000 - $55,800). The resulting increase in Don's 2021 Net Income For Tax Purposes is $15,500 ($26,200 x 60%).

On January 1, 2020, Don Buchanan Acquires a Business That