Question

After several profitable years running her business, BLANK decided to acquire the assets of a small competing business. On May 1 of year 1, BLANK acquired the competing business for $372,000. BLANK allocated $62,000 of the purchase price to goodwill. BLANK’s business reports its taxable income on a calendar-year basis. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

a. How much amortization expense on the goodwill can BLANK deduct in year 1, year 2, and year 3?

YEAR 1=

YEAR 2=

YEAR 3=

In lieu of the original facts, assume that BLANK purchased only a phone list with a useful life of 5 years for $16,000. How much amortization expense on the phone list can BLANK deduct in year 1, year 2, and year 3?

YEAR ONE AMORTIZATION EXPENSE=

YEAR TWO AMORTIZATION EXPENSE=

YEAR THREE AMORTIZATION EXPENSE=

Answer 1

1	Year 1	$2,756
	Year 2	$4,133
	Year 3	$4,133
	Working
	Basis of Goodwill	$62,000
	Recovery period	180	15 years
	Monthly amortization	$344.44	($62,000/180)
	Months in year 1	8 months	May through December
	Year 1 straight-line amortization	$2,756
	Months in years 2 and 3	12 months
	Years 2 and 3, annual straight-line amortization	$4,133
				Amortization exp.
2	Year 1	$2,756	$1,333	$4,089
	Year 2	$4,133	$2,000	$6,133
	Year 3	$4,133	$2,000	$6,133
	Basis of phone list	$10,000
	Recovery period	60	5 years
	Monthly amortization	$166.67	($62,000/60)
	Months in year 1	8 months	May through December
	Year 1 straight-line amortization	$1,333
	Months in years 2 and 3	12 months
	Years 2 and 3, annual straight-line amortization	$2,000