On January 2, 2018, 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 2018?
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. Therefore, the annual amortization for patent is $20,000 ($140,000/7 years).
The covenant not to compete has a 10-year life. Therefore, the annual amortization for covenant is $6,000 ($60,000/10 years).
The excess purchase price of $100,000 is allocated to goodwill. Goodwill is not subject to amortization.
Therefore, the total amortization deduction for 2018 is $26,000 ($20,000 for patent and $6,000 for covenant).

On January 2, 2018, Fran Acquires a Business from Chuck