On January 2, 2012, 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 2012?
A)$10,667.
B)$16,000.
C)$20,000.
D)$32,667.
E)None of the above.

Question

Quizplus · Accepted Answer

The patent has a remaining life of 7 years, so the annual amortization deduction for the patent is $140,000/7 = $20,000.
The covenant not to compete has a life of 10 years, so the annual amortization deduction for the covenant is $60,000/10 = $6,000.
Goodwill is not amortized for tax purposes.
The excess of the purchase price over the identifiable assets is allocated to goodwill, which is not amortized for tax purposes.
Therefore, the total amortization deduction for 2012 is $20,000 + $6,000 = $26,000.

On January 2, 2012, Fran Acquires a Business from Chuck