Question

Problem 8-14 (Algorithmic) Intangibles (LO 8.6) Derek purchases a small business from Art on September 1, 2019. He paid the following amounts for the business: Finced assets 290,800 Goodwill 58,160 Covenant not to compete 72,700 Total $421,660 a. How much of the $421,660 purchase price is for Section 197 intangible assets? b. What amount can Derek deduct on his 2019 tax return as Section 197 intangible amortization? If required, round the final answer to the nearest dollar. Use months, not days, in your computations.

Answer 1

a). As per Sec 197, Amortizing Intangible Assets,

Intangible assets include Goodwill and covenant not to compete.

Intangible Assets = $ 58160 + $72700

= $ 130,860

b). As per Sec 197, Amortizing Intangible Assets, the Intangible assets are amortized over 15 year period beginning the month in which they are acquired(purchased).

Intangible amortization amount

lyear 4month 15years * 12month

= $ 2908

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