On January 2,2015,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 2015?
A)$10,667.
B)$16,000.
C)$20,000.
D)$32,667.
E)None of the above.

Question

On January 2,2015,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 2015?
A)$10,667.
B)$16,000.
C)$20,000.
D)$32,667.
E)None of the above.

Quizplus · Accepted Answer

The patent has a remaining life of 7 years, so the annual amortization will be $140,000 / 7 = $20,000.

The covenant not to compete has a life of 10 years, so the annual amortization will be $60,000 / 10 = $6,000.

The excess purchase price of $100,000 will be amortized over 15 years (the remaining life of the covenant not to compete), which is $100,000 / 15 = $6,667 per year.

Therefore, the total amortization deduction for 2015 will be $20,000 + $6,000 + $6,667 = $32,667.

The correct answer is (C).

On January 2,2015,Fran Acquires a Business from Chuck