Company P purchased an 75% interest in Company S on January 1, 2016, for $675,000.On the purchase date, Company S stockholders' equity was $800,000.Any excess of cost over book value was attributed to a patent with a 10-year life.In 2016, Company P reported internally generated income before taxes of $80,000.Company S reported internally generated income before taxes of $40,000.The firms file separate tax returns at a 30% tax rate.Assume an 80% exclusion rate on intercompany income.The nondeductible portion of excess amortization is

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The excess of cost over book value is $75,000 ($675,000 - 75% of $800,000). This is attributed to a patent with a 10-year life, resulting in annual amortization of $7,500 ($75,000 / 10). The nondeductible portion is 20% of this amount, which is $1,500 ($7,500 * 20%).

Company P Purchased an 75% Interest in Company S on January