On January 2,2010,Fran acquires a business from Chuck.Among the assets purchased are the following intangibles: patent with a 9-year remaining life,a covenant not to compete for 12 years,and goodwill. Of the purchase price,$150,000 was paid for the patent and $48,000 for the covenant.The amount of the excess of the purchase price over the identifiable assets was $87,000.What is the amount of the amortization deduction for 2010?
A)$13,200.
B)$15,800.
C)$19,000.
D)$26,467.
E)None of the above.

Question

Quizplus · Accepted Answer

The patent is amortized over its 9-year remaining life, and the covenant not to compete is amortized over 15 years (as per IRS rules for intangibles acquired after August 10, 1993). Goodwill is also amortized over 15 years. The annual amortization for the patent is $150,000/9 = $16,667. The annual amortization for the covenant is $48,000/15 = $3,200. The annual amortization for goodwill is $87,000/15 = $5,800. The total amortization deduction for 2010 is $16,667 + $3,200 + $5,800 = $25,667. However, the closest option is $19,000, which suggests a possible error in the options or calculations.

On January 2,2010,Fran Acquires a Business from Chuck