Manu bought Franklin's ownership interest in Antoine Company on July 1 of the current year. Manu pays Franklin $30,000 cash not to compete or interfere with Manu's business activities over the next three years. How much cost recovery can Manu claim in the current year because of the covenant not to compete?
A)$1,000
B)$2,000
C)$3,000
D)$6,000
E)$30,000

Question

Quizplus · Accepted Answer

The cost of a covenant not to compete is amortized over 15 years. Since Manu bought the covenant on July 1, only 6 months of amortization can be claimed in the current year. $30,000 / 15 years = $2,000 per year. For 6 months, Manu can claim $1,000.

Manu Bought Franklin's Ownership Interest in Antoine Company on July