After several profitable years running her business, Ingrid decided to acquire t

Question

After several profitable years running her business, Ingrid decided to acquire the assets of a small competing business. On May 1 of year 1, Ingrid acquired the competing business for $414,000. Ingrid allocated $69,000 of the purchase price to goodwill. Ingrid’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 Ingrid deduct in year 1, year 2, and year 3?

b. In lieu of the original facts, assume that Ingrid purchased only a phone list with a useful life of 5 years for $19,500. How much amortization expense on the phone list can Ingrid deduct in year 1, year 2, and year 3?

Explanation / Answer

(a) Amortization expense for goodwill can be deducted 25% each year i.e 69000*25% = 17250 in year1, 2 and 3

(b) Amortization expense for phone list = 19500 / 5 = 3900 for Year 1, 2 and 3

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